Global imbalances and the intertemporal external budget constraint: A multicointegration approach

Mariam Camarero, Josep Carrion-i-Silvestre and Cecilio Tamarit

Journal of Banking & Finance, 2013, vol. 37, issue 12, 5357-5372

Abstract: This paper analyzes the external solvency of a group of 23 OECD countries for the period 1970–2012. The empirical strategy adopted underlines the increasing importance of the financial channel for the external adjustment as proposed in Gourinchas and Rey (2007). We unify the traditional approaches to testing for external sustainability considering the stock-flow system created by the variables representing the external relationships of an open economy. External sustainability is tested using several types of cointegration and multicointegration tests. The results obtained point to weak sustainability in the flows analysis, whereas some degree of strong sustainability is found for up to six countries in the stock-flow approach. Among these countries we find both non-European economies, such as Japan and New Zealand, and Euro-area members, especially those with more restricted access to financing in the international markets.

Keywords: Current account; Net foreign assets; Multicointegration; Structural breaks (search for similar items in EconPapers)
JEL-codes: C22 F32 F36 F37 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (26)

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Working Paper: Global imbalances and the Intertemporal External Budget Constraint: A multicointegration approach (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:37:y:2013:i:12:p:5357-5372

DOI: 10.1016/j.jbankfin.2013.01.008

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