Current account composition and sustainability of external debt (I)
If an economy runs a current account (CA) deficit and finances it via a corresponding net inflow of equity capital the external debt (ED) does not change, i.e. the CA deficit does not add to ED. This is no paradox. It simply comes from the definition of CA deficit and ED, and points to different degrees of sustainability of CA deficits according to the way they are financed and to the composition of the CA itself. By the evaluation of the determinants of interest rates spreads vis a vis US lending rates we assess the sustainability of CA deficits. We find that FDI net inflows (proxy of equity capital) allow emerging economies to sustain larger CA imbalances with respect to CA deficits financed by inflows of more liquid assets. Equity capital is a way to finance the CA. It does not contribute to the ED and it affects the solvency assessment of a country.
(This abstract was borrowed from another version of this item.)
|Date of creation:||2006|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +39 051 209 8019 and 2600
Fax: +39 051 209 8040 and 2664
Web page: http://www.dse.unibo.it
More information through EDIRC
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.:
- Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
- Buiter, Willem H. & Sibert, Anne, 2005. "How the Eurosystem’s Treatment of Collateral in its Open Market Operations Weakens Fiscal Discipline in the Eurozone (and what to do about it)," CEPR Discussion Papers 5387, C.E.P.R. Discussion Papers.
- Philip R. Lane & Gian Maria Milesi-Ferretti, 2005.
"Financial Globalisation and Exchange Rates,"
The Institute for International Integration Studies Discussion Paper Series
- Philip R. Lane & Gian Maria Milesi-Ferretti, 2004. "Financial globalization and exchange rates," LSE Research Online Documents on Economics 19926, London School of Economics and Political Science, LSE Library.
- Philip R. Lane & G Milesi-Feretti, 2004. "Financial Globalization and Exchange Rates," CEP Discussion Papers dp0662, Centre for Economic Performance, LSE.
- Gian-Maria Milesi-Ferretti & Philip R. Lane, 2005. "Financial Globalization and Exchange Rates," IMF Working Papers 05/3, International Monetary Fund.
- Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2004. "Financial Globalization and Exchange Rates," CEPR Discussion Papers 4745, C.E.P.R. Discussion Papers.
- Lane, Philip R., 2005.
"Global bond portfolios and EMU,"
Working Paper Series
0553, European Central Bank.
- Philip R. Lane, 2006. "Global Bond Portfolios and EMU," The Institute for International Integration Studies Discussion Paper Series iiisdp168, IIIS.
- Lane, Philip R, 2005. "Global Bond Portfolios and EMU," MPRA Paper 654, University Library of Munich, Germany, revised 15 Feb 2006.
- Milesi-Ferretti, G-M & Razin, A, 1996. "Current-Account Sustainability," Princeton Studies in International Economics 81, International Economics Section, Departement of Economics Princeton University,.
- G. Rossini & P. Zanghieri, 2003. "A simple test of the role of foreign direct investment in the Feldstein- Horioka puzzle," Applied Economics Letters, Taylor & Francis Journals, vol. 10(1), pages 39-41.
- Axel Schimmelpfennig & Nouriel Roubini & Paolo Manasse, 2003. "Predicting Sovereign Debt Crises," IMF Working Papers 03/221, International Monetary Fund.
- Hong G. Min, 1998. "Determinants of emerging market bond spread : do economic fundamentals matter?," Policy Research Working Paper Series 1899, The World Bank.
- Swati R. Ghosh & Atish R. Ghosh, 2003. "Structural Vulnerabilities and Currency Crises," IMF Staff Papers, Palgrave Macmillan, vol. 50(3), pages 7.
When requesting a correction, please mention this item's handle: RePEc:bol:bodewp:568. 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: (Luca Miselli)The email address of this maintainer does not seem to be valid anymore. Please ask Luca Miselli to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.