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IS THE BALANCING ITEM FOR AUSTRALIA SUSTAINABLE? EVIDENCE FROM A THRESHOLD AUTOREGRESSIVE MODEL WITH AN AUTOREGRESSIVE UNIT ROOT
Author(s) -
MISHRA VINOD,
SMYTH RUSSELL,
TANG TUCK CHEONG
Publication year - 2008
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/j.1467-8454.2008.00340.x
Subject(s) - autoregressive model , econometrics , unit root , economics , volatility (finance) , unit root test , statistics , mathematics , cointegration
This article applies an unrestricted two‐regime threshold autoregressive (TAR) model with an autoregressive unit root to examine the sustainability of the balancing item of the balance of payments for Australia from the first quarter 1960 to the second quarter 2006. The main finding is that the balancing item of the balance of payments in Australia is characterised by a non‐linear, but stationary, series meaning that the balancing item is sustainable. This result implies that short‐run volatility in the balancing item has no effect on the reliability of reporting of the balancing item in the long‐run.