Feasible Limits for External Deficits and Debt

Anthony Makin

Global Economy Journal, 2005, vol. 5, issue 1, 16

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 article 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.

Keywords: current account deficit; external debt; maximum limits (search for similar items in EconPapers)
Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://doi.org/10.2202/1524-5861.1043 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
Working Paper: Feasible Limits For External Deficits And Debt (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:glecon:v:5:y:2005:i:1:n:1

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/gej/html

DOI: 10.2202/1524-5861.1043

Access Statistics for this article

Global Economy Journal is currently edited by Jannett Highfill

More articles in Global Economy Journal from De Gruyter
Bibliographic data for series maintained by Peter Golla ().