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On the Solvency of Nations :, Are Global Imbalances Consistent with Intertemporal Budget Constraints?, Enrique Mendoza, Marco Terrones, Ceyhun Bora Durdu

Theory predicts that a nation's stochastic intertemporal budget constraint is satisfied if net exports (NX) and net foreign assets (NFA) satisfy an error-correction specification with a residual integrated of any finite order. We test this hypothesis using data for 21 industrial and 29 emerging economies for the 1970-2004 period to search for existence of negative relationship between NX and NFA. The results show that, despite the large global imbalances of recent years, NX and NFA positions are consistent with external solvency. Pooled Mean Group error-correction estimation yields evidence of a statistically significant, negative response of the NX-GDP ratio to the NFA-GDP ratio that is largely homogeneous across countries
Table Of Contents
Contents; I. Introduction; II. Methodology; A. Testing Solvency with Error-Correction Reaction Functions; B. General Equilibrium Representation; III. Estimation Results; A. Data; A.1 Panel Error-Correction Estimation; A.2 Robustness; A.3 Testing Solvency with NFA Integration Tests; IV. Conclusion; References; Appendix I: Derivation of the PMG equation; Appendix II: Sample of Countries; Tables; 1. Sample Statistics; 2. Dynamic Panel Estimates of Net Exports on Net Foreign Assets; 3. Long-run NFA; 4. Dynamic Panel Estimates of Net Exports on Net Foreign Assets; Figures
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (41 p.)
Specific Material Designation
Form Of Item

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