Feasible Limits For External Deficits And Debt

Makin, Anthony J. (2003) Feasible Limits For External Deficits And Debt. Discussion Paper No 321, School of Economics, University of Queensland.

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Author Makin, Anthony J.
Title Feasible Limits For External Deficits And Debt
School, Department or Centre School of Economics
Institution University of Queensland
Open Access Status Other
Report Number Discussion Paper No 321
Publication date 2003-03-01
Subject 340203 Finance Economics
340209 Public Sector Economics
Abstract/Summary Rising current account deficits and foreign debt levels remain a source of concern for international financial markets and policymakers. Yet, exactly what constitutes an "excessive" external deficit or liability position for an economy at any time has not been adequately defined. This paper addresses this question by proposing measures of the maximum feasible limits of current account deficits and foreign debt levels based on international macroeconomic relationships. It proposes that investment opportunities essentially define the limit of feasibility for current account deficits, whereas the capital to output ratio sets the feasible foreign debt to GDP limit. Benchmark estimates of these limits are presented for advanced economies that have borrowed heavily since 1990.
Keyword Current account deficit
Foreign debt
Overseas borrowing

Document type: Department Technical Report
Collection: Discussion Papers (School of Economics)
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Created: Fri, 06 Feb 2004, 10:00:00 EST