Feasible Limits for External Deficits and Debt

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Title Feasible Limits for External Deficits and Debt
Author Makin, Anthony John
Journal Name Global Economy Journal
Editor Alfred E. Eckes, Khosrow Fatemi
Year Published 2005
Place of publication United States
Publisher Berkeley Electronic Press
Abstract 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 paper 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.
Peer Reviewed Yes
Published Yes
Publisher URI http://www.bepress.com/gej/vol5/iss1/1/
Copyright Statement Copyright 2005 Berkeley Electronic Press. Reproduced in accordance with the copyright policy of the publisher. This journal is available online - use hypertext links.
Volume 5
Issue Number 1
Page from 1
Page to 14
ISSN 1553-5304
Date Accessioned 2006-01-09
Language en_AU
Faculty Griffith Business School
Subject Political Economy
URI http://hdl.handle.net/10072/4622
Publication Type Journal Articles (Refereed Article)
Publication Type Code c1

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