 Current account imbalances: A new approach to assess external debt sustainabilityWilli Semmler and Ibrahim Tahri Economic Modelling, 2017, vol. 62, issue C, 161-170 Abstract: The aim of this paper is to analyze the external debt of three Euro area economies, Italy, Spain, and Germany. To study the effect of debt on the investment-consumption dynamics in those countries, we first discuss the causes, sources, and adjustment processes of current account deficits in industrialized economies, with a particular focus on the Eurozone member states. We then introduce new empirical measures of sustainability. Instead of using the common measure of external debt over GDP, we use debt over assets. To study the dynamics of external debt sustainability we use an intertemporal model of finite time horizon, which we numerically solve through Non-linear Model Predictive Control (NMPC) method. Using our numerical solution method, we provide a calibration of the external debt sustainability for Italy, Spain, and Germany. In the calibration of our model for those countries we also measure sustainability by the debt to asset ratio and show that the periphery economies moved toward a slow moving debt crisis, whereas Germany moved into a stable environment. Yet, the latter is likely to be affected by the former in the long run. Date: 2017 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:62:y:2017:i:c:p:161-170 DOI: 10.1016/j.econmod.2016.12.005 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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