IMF Working Papers

Net Foreign Assets and International Adjustment: The United States, Japan, and Germany

Author/Editor:

Jocelyn Horne ; Paul R Masson ; Jeroen J. M. Kremers

Publication Date:

April 1, 1993

Summary:

This paper examines external adjustment in the United States, 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, some of the adjustment mechanisms sustaining that equilibrium? An analysis of post-war data produces two insights. First, using a cointegration approach, the existence of long-run net foreign asset equilibrium can be identified: it is a function of demographic variables and public debt. Second, deviations from long-run equilibrium give rise to feedback through different components of domestic absorption in the three countries.

Series:

Working Paper No. 1993/033

Subject:

Balance of payments Current account Expenditure External position Foreign assets Foreign currency exposure Money Public debt