Cross-Country Experience in Reducing Net Foreign Liabilities: Lessons for New Zealand

Ding Ding, Werner Schule and Yan Sun

No 2014/062, IMF Working Papers from International Monetary Fund

Abstract: This paper studies the dynamics of net foreign liabilities across a number of countries. Our historical analysis suggests that an orderly reduction in a country’s net foreign liabilities has mostly occurred when there was significant improvement in gross public savings through deliberate fiscal consolidation measures. Simulations of a dynamic general equilibrium model calibrated for New Zealand indicates that sustained government deficit reduction could improve the country’s net foreign assets by about half of the accumulated public savings. However, given New Zealand’s relatively strong fiscal positions and previous work noting structurally low household savings, an orderly improvement in New Zealand’s external position in the medium term will depend on a structural improvement in private savings.

Keywords: WP; GDP; crisis; private sector; Net foreign liabilities; Current account balance; Public savings; Fiscal consolidation; crisis risk; exchange rate; crisis database; gross private sector debt; inflation crisis; reductions in NFL; New Zealand's NFL; Foreign liabilities; Foreign assets; Trade balance; Global (search for similar items in EconPapers)
Pages: 20
Date: 2014-04-16
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