Starting from the budget constraint of a country, derive the present value condition for the country's external imbalances.

Moreover, what is the link between external imbalances and future exchange rates? What are the key channels? Why is the valuation channel important? Explain your answer.

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The budget constraint of a country can be expressed as follows Current account balance Capital account balance 0 Where the current account balance is the difference between a countrys exports and impo... View the full answer