DP437 | National Insolvency: A Test of the US Intertemporal Budget Constraint

Publication Date

01/08/1990

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Abstract

If a nation fails to satisfy its intertemporal budget constraint (IBC) then, like a government or a household, either it will become insolvent or it can consume more of its income. The main purpose of this paper is to establish necessary and sufficient conditions for a nation to satisfy its IBC, and to use these to carry out a test of whether the United States is violating its IBC. After suitable modifications the techniques used in the literature in testing the government IBC can be used; for example, the balance of payments replaces the government budget constraint. The analysis provides a number of new results and generalizations of existing results.