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  • Have Domestic or Foreign Factors Driven European External Imbalances?

    Author(s)
    Makin, Anthony J
    Narayan, Paresh Kumar
    Griffith University Author(s)
    Makin, Tony J.
    Year published
    2011
    Metadata
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    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 ...
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    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.
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    Journal Title
    Journal of International Money and Finance
    Volume
    30
    Issue
    3
    DOI
    https://doi.org/10.1016/j.jimonfin.2011.01.007
    Subject
    Applied economics
    Econometrics
    Banking, finance and investment
    Publication URI
    http://hdl.handle.net/10072/40694
    Collection
    • Journal articles

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