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The external constraint in the UK

By Charles Bean


This paper begins by reviewing the impact of external considerations on British economic policy making over the last hundred and fifty years. We then go on to ask whether, in addition to the usual intertemporal solvency requirement, there is a period-by-period external constraint in the form of a rising virtual supply price of foreign borrowing. We estimate a version of consumption risk-adjusted interest parity that allows for such a feature, but find little evidence that it is important. Finally, we discuss the recent evolution of the British current account and argue that the authorities are right to take a sanguine view

Topics: HC Economic History and Conditions
Publisher: Centre for Economic Performance, London School of Economics and Political Science
Year: 1990
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Provided by: LSE Research Online
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