This exercise asks you to look at the current account balances and the net foreign asset position of the GIPS (Greece, Ireland, Portugal, and Spain) countries. Your first data source is the IMFâ€™s World Economic Outlook Data Base (version April 2011). http://www.imf.org.
(a) Obtain data for the current account to GDP ratio for each GIPS country for the period 1980 to 2010.
(b) Use a computer software, such as Matlab or Excel, to plot the current account to GDP ratio against time for each country. Provide a short discussion of your graph.
(c) Find the cumulative CA balance for each of the four GIPS countries over the period 1980 to 2010 in U.S. dollars and discuss the implied change in the net foreign asset positions of each country and relate it to GDP in 2010.
The second data set contains information on the net foreign asset position (or net international investment position) of the GIPS countries. Specifically, use the data compiled by Philip L. Lane and Gian Maria Milesi Feretti, available online at http://www.philiplane.org/EWN.html.
(a) Again make a time series plot for each country of the NFA (net foreign asset positionâ€”as calculated by Milesi Feretti and Lane) in U.S. 39 dollars.
(b) Compare the change in the NFA as calculated by Milesi Feretti and Lane with the CA balance data from the WEO database. What factors may explain these differences.
(c) Finally, assume it was the year 2005 and you looked at CA and NFA data for the GIPS countries. Now with the benefit of hindsight, what early signs of balance of payments trouble do you detect.
(d) Which of the GIPS countries were still running CA deficits after the onset of the financial crisis in 2009 and 2010. Who do you think is financing those current account deficitsâ€”the foreign private creditors or foreign governments?
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