TY - JOUR
T1 - Have domestic or foreign factors driven European external imbalances?
AU - Makin, Anthony J.
AU - Narayan, Paresh Kumar
N1 - Copyright:
Copyright 2011 Elsevier B.V., All rights reserved.
PY - 2011/4
Y1 - 2011/4
N2 - This paper examines whether domestic or foreign net saving predominantly influences an economy's international borrowing and lending with reference to the experience of western European economies that have had sizable current account surpluses and deficits since the turn of the century. It proposes that if an international lender country's current account surplus is positively (negatively) related to its real long term interest rate, then foreign (domestic) factors are driving its external imbalance. On the contrary, for a foreign borrower country if its current account deficit is positively (negatively) related to its real long term interest rate, domestic (foreign) factors drive its external imbalance. On this basis, it shows econometrically for major European lender economies, Germany, the Netherlands, Switzerland and Sweden, that external imbalances this decade were mainly determined by foreign factors, though by domestic factors for Norway. For major borrower economies, Italy, Spain, Portugal, Ireland and the United Kingdom, the results were not significant implying that neither domestic nor foreign factors predominated over this time.
AB - This paper examines whether domestic or foreign net saving predominantly influences an economy's international borrowing and lending with reference to the experience of western European economies that have had sizable current account surpluses and deficits since the turn of the century. It proposes that if an international lender country's current account surplus is positively (negatively) related to its real long term interest rate, then foreign (domestic) factors are driving its external imbalance. On the contrary, for a foreign borrower country if its current account deficit is positively (negatively) related to its real long term interest rate, domestic (foreign) factors drive its external imbalance. On this basis, it shows econometrically for major European lender economies, Germany, the Netherlands, Switzerland and Sweden, that external imbalances this decade were mainly determined by foreign factors, though by domestic factors for Norway. For major borrower economies, Italy, Spain, Portugal, Ireland and the United Kingdom, the results were not significant implying that neither domestic nor foreign factors predominated over this time.
KW - Current account imbalances
KW - Europe
KW - International borrowing and lending
KW - Investment
KW - Real interest rates
KW - Saving
UR - http://www.scopus.com/inward/record.url?scp=79952200937&partnerID=8YFLogxK
U2 - 10.1016/j.jimonfin.2011.01.007
DO - 10.1016/j.jimonfin.2011.01.007
M3 - Article
AN - SCOPUS:79952200937
SN - 0261-5606
VL - 30
SP - 537
EP - 546
JO - Journal of International Money and Finance
JF - Journal of International Money and Finance
IS - 3
ER -