Net Foreign Assets and International Adjustment in the United States, Japan and the Federal Republic of Germany

International Monetary Fund

No 1989/022, IMF Working Papers from International Monetary Fund

Abstract: This paper examines external adjustment in the U.S., Japan and Germany from the perspective of net foreign asset positions. It asks two questions: What are, in the long run, the determinants of net foreign asset equilibrium? and: What are, in the short run, the adjustment mechanisms sustaining that equilibrium? An analysis of postwar data produces two insights. First, using a cointegration approach, the existence of long-run net foreign asset equilibrium can be identified; in each of the G-3 countries, it is a function of demographic variables and public debt. Second, deviations from the long-run equilibrium give rise to disequilibrium feedback through domestic absorption and through other channels.

Keywords: WP; current account; exchange rate; critical value; standard error; B/Y ratio; real interest rate; government spending; equilibrium value; current account imbalance; fitted value; Foreign assets; Foreign currency exposure; Real exchange rates; Real interest rates (search for similar items in EconPapers)
Pages: 60
Date: 1989-01-01
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Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:1989/022

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