Sustainability Analysis of Current Account in the European Union Countries: FADF and FKSS Unit Root Tests

Abstract

This paper investigates the sustainability of the current account in 27 European Union countries over the period 2005Q1-2020Q3. First, series which is considered as the ratio of the current account to gross domestic product, was applied to the traditional unit root test ADF and the nonlinear unit root test KSS. According to the ADF test, the current account was stationary in 9 countries and according to the KSS test, current account was stationary in 5 countries. Later, nonlinear FADF and FKSS unit root tests based on Fourier were applied. According to the unit root tests results, series were found stationary in 10 countries for FADF and 3 countries for FKSS. ADF and KSS test results are valid for countries whose trigonometric terms are insignificant. According to these results, it can be said that Fourier terms should be considered in unit root tests on the current account.