On the Solvency of Nations: Are Global Imbalances Consistent with Intertemporal Budget Constraints?
AbstractTheory predicts that a nation's stochastic intertemporal budget constraint is satisfied if net exports (NX) and net foreign assets (NFA) satisfy an error-correction specification with a residual integrated of any finite order. We test this hypothesis using data for 21 industrial and 29 emerging economies for the 1970-2004 period to search for existence of negative relationship between NX and NFA. The results show that, despite the large global imbalances of recent years, NX and NFA positions are consistent with external solvency. Pooled Mean Group error-correction estimation yields evidence of a statistically significant, negative response of the NX-GDP ratio to the NFA-GDP ratio that is largely homogeneous across countries.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 10/50.
Date of creation: 01 Feb 2010
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Other versions of this item:
- Ceyhun Bora Durdu & Enrique G. Mendoza & Marco E. Terrones, 2009. "On the solvency of nations: are global imbalances consistent with intertemporal budget constraints?," International Finance Discussion Papers 975, Board of Governors of the Federal Reserve System (U.S.).
- NEP-ALL-2010-03-28 (All new papers)
- NEP-CBA-2010-03-28 (Central Banking)
- NEP-OPM-2010-03-28 (Open Economy Macroeconomic)
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- Oscar Bajo-Rubio & Carmen Díaz-Roldán & Vicente Esteve, 2012.
"Sustainability of external imbalances in the OECD countries,"
1201, Department of Applied Economics II, Universidad de Valencia.
- Oscar Bajo-Rubio & Carmen Díaz-Roldán & Vicente Esteve, 2011. "Sustainability of external imbalances in the OECD countries," Working Papers 11-07, Asociación Española de Economía y Finanzas Internacionales.
- Christian Schoder & Christian R. Proaño & Willi Semmler, 2012. "Are the current account imbalances between EMU countries sustainable?," IMK Working Paper 90-2012, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
- Mariam Camarero & Josep Lluís Carrion-i-Silvestre & Cecilio Tamarit, 2013. "Global imbalances and the Intertemporal External Budget Constraint: A multicointegration approach," Working Papers 1303, Department of Applied Economics II, Universidad de Valencia.
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