On the determination of the external debt: The case of Israel |
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| Affiliation: | 1. Secretaria General del Tesoro y Política Financiera, Ministerio de Economía y Competitividad, Paseo del Prado N° 6, Madrid, Spain;2. Grupo de Economía Internacional, Departamento de Economía y Ciencias Sociales, Universidad Politécnica de Valencia, Camino de Vera s/n, Valencia 46022, Spain;3. Instituto de Economía Internacional, Universidad de Valencia, Avenida de los Naranjos s/n, Valencia 46022, Spain;1. Department of Economics, Indiana University, Bloomington, IN 47405, USA;2. National Bureau of Economic Research, Cambridge, MA 02138, USA;3. Department of Economics, School of Economics and Management, Tsinghua University, Room 525, Weilun Building, Beijing, 100084, China;1. Paris School of Economics, Paris, France;2. Federal Reserve Bank of Chicago, Chicago, IL, United States |
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| Abstract: | This paper pursues the econometric implementation of an intertemporal optimization model of the foreign debt with Israeli data. In this model the private sector faces perfect capital markets and maximizes utility from consumption over an infinite horizon. The intertemporal budget constraint recognizes the intertemporal finance equation of the government. Under these conditions the effect of current disturbances (in output, government spending, and unilateral transfers) on private consumption and foreign borrowing is determined by their perceived future persistence. The model passes a formal econometric test. However, some results are also suggestive of omitted considerations. |
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