In a previous blog, I explain how to use the JDemetra+ Seasonal Adjustment with EViews:
Today, we are going to use an updated dataset for the quarterly current account balances for 70 countries that we build in the context of a project with Eric Clower and Hiro Ito on current account persistence. You can see in the figure below that a significant negative value in the median of the current account balance series (between -2 and -4 percent of GDP) is often, but not always, followed by a global recession. The shaded areas indicate a global recession, identified by Kose et al. (2020). They identified four episodes of global recessions, from their paper: “The baseline statistical method identifies four declines (troughs) in annual real global per capita GDP, using market exchange rate weights, since 1950—in 1975, 1982, 1991, and 2009“, and “The statistical approach identifies four global recessions in the quarterly series since 1960: 1974:1-1975:1, 1981:4-1982:4, 1990:4- 1991:1, and 2008:3-2009:1 (Figure 6; Table 1). With the quarterly data, the average duration of global recessions was slightly less than one year. In addition to these four recession episodes, global per capita output contracted in 1970:4 (-0.7 percent), 1980:2 (-4.8 percent), 1981:2 (-0.3 percent), 1998:1 (-0.2 percent), and 2001:3 (-0.5 percent). These contractions lasted for only a quarter without translating into global recessions. However, some of these short-lived global contractions were associated with recessions in major economies that took place ahead of global recessions (1982) or coincided with global downturns (1998 and 2001), as discussed below.” I put the Figure 6 from their paper, as an illustration:
Finally, we can see that these global recession episodes are preceded by a significant negative value in the median of the current account balance series (between -2 and -4 percent of GDP). The one-million-dollar question is to know whether this is a reliable early warning system for the world economy.
References
Clower, E., & Ito, H. (2012). The persistence of current account balances and its determinants: the implications for global rebalancing (No. 400). ADBI Working Paper. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2190266
Kose, M, N Sugawara and M E. Terrones (2020), ‘DP14397 Global Recessions‘, CEPR Discussion Paper No. 14397. CEPR Press, Paris & London. https://cepr.org/publications/dp14397