Feasible Limits for External Deficits and Debt
Large current account deficits and foreign debt levels remain a source of concern for international financial markets and policymakers. Yet, exactly what an excessive external deficit or liability position for an advanced economy is at any time has never been adequately defined. This article addresses the question by proposing new methods for assessing the proximity of current account deficits and the associated foreign debt to their upper bounds. It contends that productive investment fundamentally sets the feasible limit for current account deficits, whereas the capital to output ratio ultimately sets the foreign debt to GDP limit. Benchmark estimates for the United States, Australia, New Zealand and the United Kingdom, advanced economies that have borrowed heavily since 1990, reveal external deficits have usually been well within limits, although recent United States experience is an exception.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Milesi-Ferretti, G-M & Razin, A, 1996.
Princeton Studies in International Economics
81, International Economics Section, Departement of Economics Princeton University,.
- Milesi-Ferreti, Gian Maria & Razin, Assaf, 1996. "Current account sustainability," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 34294, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
- Caroline L. Freund, 2000. "Current account adjustment in industrialized countries," International Finance Discussion Papers 692, Board of Governors of the Federal Reserve System (U.S.).
- Sebastian Edwards, 2001.
"Does the Current Account Matter?,"
NBER Working Papers
8275, National Bureau of Economic Research, Inc.
- Catherine L. Mann, 1999. "Is the U.S. Trade Deficit Sustainable?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 47, January.
- Razin, A., 1993.
"The Dynamic-Optimizing Approach to the Current Account: Theory and Evidence,"
2-93, Tel Aviv - the Sackler Institute of Economic Studies.
- Assaf Razin, 1993. "The Dynamic-Optimizing Approach to the Current Account: Theory and Evidence," NBER Working Papers 4334, National Bureau of Economic Research, Inc.
- Catherine A Pattillo & Andrew Berg, 1998.
"Are Currency Crises Predictable? A Test,"
IMF Working Papers
98/154, International Monetary Fund.
- Ghosh, Atish R & Ostry, Jonathan D, 1995. "The Current Account in Developing Countries: A Perspective from the Consumption-Smoothing Approach," World Bank Economic Review, World Bank Group, vol. 9(2), pages 305-33, May.
- Feldstein, Martin & Horioka, Charles, 1980.
"Domestic Saving and International Capital Flows,"
Royal Economic Society, vol. 90(358), pages 314-29, June.
When requesting a correction, please mention this item's handle: RePEc:bpj:glecon:v:5:y:2005:i:1:n:1. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.