External imbalances in emerging and advanced European countries (original) (raw)
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The purpose of this paper is to explore the main macroeconomic, financial and structural factors that influenced current account developments in the euro area countries over the period from 1980 to 2008. The analysis, which theoretically rests on the intertemporal approach, uses a panel consisting of the twelve EU member states that initially joined the euro area, which is then expanded to seventeen countries with the aim to see whether the enlargement or potential enlargement of the euro area would alter the identified set of current account determinants. The results show that factors such as the level of development, demographics, macroeconomic policies and competitiveness, are important in explaining current account positions of individual euro area countries. Moreover, the analysis of short-run dynamics indicates that the EMU has resulted in longer periods of adjustment of current account imbalances. JEL classification: F30; F32
Long-run determinants of current accounts in OECD countries: Lessons for intra-European imbalances
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Global and euro area external imbalances adjustment Panel cointegration test Linear and asymmetric panel VECM In this paper we study the long-run determinants of current account balances in 21 OECD countries. We define long-run targets to determine whether actual current account balances are in line with their equilibrium values and find that, following the crisis, the United States, Japan and Spain returned towards their targets but that much remains to be done in Austria, Greece and Germany. Using linear and asymmetric panel VECM models, we find that the speed of convergence of external imbalances is much faster in deficit countries than in surplus ones. These results suggest that the adjustment of intra-European imbalances has to take place in both surplus and deficit countries and should be particularly substantial in the former. This revived the old debate of how to get the surplus countries to adjust.
Current account imbalances in the euro area
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While the current account balance for the euro area as a whole has been in balance, divergences in current account positions among the euro-area members have widened since the introduction of the common currency euro. During the last 13 years Portugal, Greece and Spain have run large and persistent current account deficits, whereas Luxembourg, the Netherlands, Finland or Germany have displayed during the same period large and persistent surpluses. However, there is no unambiguous agreement among economists, whether this divergence of current account positions of the euro-area countries mirrors growing intra-euro-area imbalances (Gros, 2012) or just reflects proper functioning of the European integration process (Schmitz and von Hagen, 2009). Therefore, the aim of this paper is to estimate equilibrium current account position for each of the original 12 euro area countries so that it is possible to assess whether the divergence of intra-euro current account balances could be explaine...
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This study analyzes the relationships between domestic and foreign output gaps, current-account imbalances, and real effective exchange-rate (REER) misalignments. We first set up a theoretical framework based on the elasticities and absorption approaches of the balance of payments to derive and clarify these relationships. Next, we perform panel VAR estimates in a sample of 18 advanced economies between 1986 and 2017. We find an inverse relationship between domestic output gaps and current accounts with reciprocal influences between the two variables. Moreover, we observe that increases in current accounts generally boost both temporary and structural growth. Additionally, our results indicate that REER misalignment shocks cause reactions of the opposite sign on the current account and on cyclical economic growth. We also find evidence of higher growth resulting in a real exchange-rate appreciation, which supports the Balassa–Samuelson hypothesis.
Evolution of Current Account Imbalances in the Euro Area
This study provides an overview of the evolution of external imbalances in the Euro Area. It also aims to provide a basis for explaining divergence from desired outcomes and to explore root causes for unstable economic performance in some of its economies. We present data and analyze the vulnerabilities of countries suffering from external imbalances. Eventually, we observe that some of these economies resulted to volatile macroeconomic circumstances as in the emerging market economies, and some others have been involved in excessive surplus. While we emphasize the role of the ECB, we argue that free private capital flows should provide the necessary financing when governments follow policies consistent with forward-looking expectations of the global investors.
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2007
Global current account imbalances have been one of the focal points of interest for policymakers during the last few years. Less attention has been paid, however, to the growing imbalances within the Euro-area. In the short period since the commencement of the EMU two distinct groups of member state have emerged: those with consistently improving current accounts and those with consistently worsening current accounts. In this paper we consider the dynamics of current account adjustment and the role of real exchange rates in current account determination in the EMU member countries. Monetary union participation, which entails giving up the nominal exchange rate, can make the correction of current account imbalances more cumbersome. While most theoretical models of open economies rely on a causal relationship between real exchange rates and the current account limited, if any, contemporary evidence exist on the empirical validity of this relationship. We find that the above relationship is substantial in size and subject to pronounced non-linear effects. We identify two groups of countries since the abandonment of European national currencies: those with persistent real exchange rate depreciation leading to current account improvement; and those with systematic real appreciation and deteriorating current accounts. These groups largely correspond to those previous research has identified as respectively belonging and not belonging to a European Optimum Currency Area. Our findings validate the theoretical arguments concerning the potential costs of EMU participation and suggest that meeting the nominal convergence criteria has come, in some countries, at the cost of growing current account imbalances. The latter pose policy-response questions for national authorities and the ECB, suggesting that it may be optimal to add to the EMU-accession criteria one referring to the balance of the current account; and highlighting the importance of increasing the flexibility of relative prices to facilitate real exchange rate and current account adjustment.
Current Account Imbalances and the Euro Area. Alternative Views
SSRN Electronic Journal, 2019
The critical role of current account imbalances (CAI) is widely shared in the consensus narratives of the European crisis that followed the Great Recession. On the basis of this interpretation, new EU initiatives raised, in particular the so-called "Six Pack" adoption in 2011 and the establishment of the European Semester procedure to improve policy coordination in the EU beyond fiscal matters. This package includes the Macroeconomic Imbalances Procedure (MIP) that broadens the EU economic governance framework to include the surveillance of unsustainable macroeconomic trends. Although the widening of the CAI in the Euro Area is a matter of fact, and the consensus narrative contains elements of truth, alternative views have been put forward on mainly three issues: i) their relevance, ii) their causes and connection with the crisis, and iii) their policy implications. The aim of this paper is to examine these controversial points about the causes, meaning and consequences of CAI, and discuss the alternative policy prescriptions that emerge.
Rebalancing: Evidence from Current Account Adjustment in Europe
IMF Working Papers, 2013
After the 2003-2007 economic boom, European countries with large pre-crisis current account imbalances are undergoing adjustments. Countries are adjusting at different paces and ways reflecting the source and magnitude of imbalances, availability of financing, competitiveness of the tradable sector and external environment. While emerging European countries with large pre-crisis imbalances and a fixed exchange rate regime have seen sharp current account adjustments and a rebound in growth, adjustment in the euro zone periphery countries, which are also carrying a legacy of pre-crisis CA imbalances, has been gradual with difficulties bringing back growth. This paper is an empirical investigation of current account adjustment in Europe with a focus on these two groups, looking at contributions from cyclical and other factors, and seeking to draw policy conclusions.
Available at SSRN 2016127, 2012
The paper discusses the seriousness of current account imbalances in the last few decades in Europe, with a particular focus on the European Monetary Union. A closer look at the development of current accounts in European economies suggests the existence of some serious structural problems that might jeopardize economic performance of single countries, but even more importantly, of the entire monetary union. Although current account positions have been subject of numerous research projects till now, scarce interest has been offered regarding specifically the situation in the member states of the euro area and in the euro candidate countries. This lack of interest could be justified among others with the myopic conviction expressed in the literature that current account positions become irrelevant in a monetary union. Instead, there are conceptual reasons to be worried about external imbalances in a currency area, and particularly, in the current as well as potentially enlarged EMU.
1 Fiscal Divergence and Current Account Imbalances in Europe
2016
Since the breakdown of the Bretton Woods System diverging current account positions in Europe have prevailed. Whereas the Southern and Western European countries have tended to run current account deficits, the current accounts of the Central and Northern European countries, in particular Germany, have tended to be in surplus. The paper scrutinizes the role of diverging fiscal policy stances on current account (im-)balances in Europe since the early 1970s under alternative institutional monetary arrangements (floating exchange rates, European Monetary System, and European Monetary Union). The paper sheds light on the interaction of fiscal and monetary policies with respect to their impact on current account balances and analyses the role of exchange rates and credit mechanisms as adjustment mechanisms for current account imbalances. Pooled panel regressions reveal a robust impact of fiscal policy divergence on European current account imbalances, which is mainly independent from the...