Cross-Country Experience in Reducing Net Foreign Liabilities: Lessons for New Zealand

April 16, 2014

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Format: Chicago

Ding Ding, Werner Schule, and Yan M Sun. Cross-Country Experience in Reducing Net Foreign Liabilities: Lessons for New Zealand, (USA: International Monetary Fund, 2014) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper studies the dynamics of net foreign liabilities across a number of countries. Our historical analysis suggests that an orderly reduction in a country’s net foreign liabilities has mostly occurred when there was significant improvement in gross public savings through deliberate fiscal consolidation measures. Simulations of a dynamic general equilibrium model calibrated for New Zealand indicates that sustained government deficit reduction could improve the country’s net foreign assets by about half of the accumulated public savings. However, given New Zealand’s relatively strong fiscal positions and previous work noting structurally low household savings, an orderly improvement in New Zealand’s external position in the medium term will depend on a structural improvement in private savings.

Subject: Balance of payments, Current account balance, External position, Fiscal consolidation, Fiscal policy, Foreign assets, Foreign liabilities, International trade, Trade balance

Keywords: Crisis, Crisis database, Crisis risk, Current account balance, Exchange rate, Fiscal consolidation, Foreign assets, Foreign liabilities, GDP, Global, Gross private sector debt, Inflation crisis, Net foreign liabilities, New Zealand's NFL, Private sector, Public savings, Reductions in NFL, Trade balance, WP

Publication Details

Pages:

20
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/062
Stock No:

WPIEA2014062
ISBN:

9781475516388
ISSN:

1018-5941

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