Have Domestic or Foreign Factors Driven European External Imbalances?

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Title Have Domestic or Foreign Factors Driven European External Imbalances?
Author Makin, Anthony John; Narayan, Paresh Kumar
Journal Name Journal of International Money and Finance
Editor James Lothian
Year Published 2011
Place of publication United Kingdom
Publisher Pergamon
Abstract This paper examines whether domestic or foreign net saving predominantly influences an economy's international borrowing and lending with reference to the experience of western European economies that have had sizable current account surpluses and deficits since the turn of the century. It proposes that if an international lender country's current account surplus is positively (negatively) related to its real long term interest rate, then foreign (domestic) factors are driving its external imbalance. On the contrary, for a foreign borrower country if its current account deficit is positively (negatively) related to its real long term interest rate, domestic (foreign) factors drive its external imbalance. On this basis, it shows econometrically for major European lender economies, Germany, the Netherlands, Switzerland and Sweden, that external imbalances this decade were mainly determined by foreign factors, though by domestic factors for Norway. For major borrower economies, Italy, Spain, Portugal, Ireland and the United Kingdom, the results were not significant implying that neither domestic nor foreign factors predominated over this time.
Peer Reviewed Yes
Published Yes
Alternative URI http://dx.doi.org/10.1016/j.jimonfin.2011.01.007
Volume 30
Issue Number 3
Page from 537
Page to 546
ISSN 0261-5606
Date Accessioned 2011-06-11
Language en_AU
Faculty Griffith Business School
Subject International Economics and International Finance
URI http://hdl.handle.net/10072/40694
Publication Type Journal Articles (Refereed Article)
Publication Type Code c1

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