Study on the relationship between current account imbalance sustainability and financial crisis: Evidence from the U.S. and China in subprime crisis

This paper empirically studies the stationarity and sustainability of the U.S. and China´s current account using quarterly data from 2001 to 2009 to research the relationship between current account sustainability and financial crisis. Based on cointegration theory, it adopts ADF unit roots test, Granger causality test, Engle — Granger cointegration test, develops cointegration model and error correction model of import and export. The findings are shown as follows: (1) Current account deficit of the U.S. is non-stationary and it can´t sustain in the long run. (2) There is a long-run equilibrium relationship and a dynamic self-correction mechanism between import and export because both of them are cointegration. Therefore, China´s current account surplus is sustainable in the long run. (3) One of inducement of financial crisis is non-sustainability of current account imbalance.