Albanian Current Account Deficit: Does it Possess Mean Reverting Properties?

During the last 15 years Albania’s current account has wandered in deficits, which in most of the cases have reached well beyond the 5% of GDP, a broadly accepted measure of sustainability. This research investigates the sustainability properties of the Albanian current account deficit, based on the LRBC method developed by Trehan and Walsh (1991), and extended by Taylor (2002). We make use of quarterly current account observations for the 1994–2006 period and unit root testing to investigate the mean reverting properties of current account. We pay special attention to the role of remittances and aim to asses whether they play a significant role in the sustainability of current account. Our results show that despite latest widening deficit, current account seems to be sustainable in the long run. However this sustainability might be vulnerable and deserves the attention of Albanian authorities.