External Imbalances in the Euro Area

Author/Editor:

Ruo Chen ; Gian M Milesi-Ferretti ; Thierry Tressel

Publication Date:

September 28, 2012

Electronic Access:

Free Full text (PDF file size is 872 KB).Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

The paper examines the extent to which current account imbalances of euro area countries are related to intra-euro area factors and to external trade shocks. We argue that the traditional explanations for the rising imbalances are correct, but are incomplete. We uncover a large impact of declines in export competitiveness and asymmetric trade developments vis-à-vis the rest of the world –in particular vis-à-vis China, Central and Eastern Europe, and oil exporters- on the external balance of euro area debtor countries. While current account imbalances of euro area deficit countries vis-à-vis the rest of the world increased, they were financed mostly by intra-euro area capital inflows (in particular by the purchase of government and financial institutions’ securities, and cross-border interbank lending) which permitted external imbalances to grow over time.

Series:

Working Paper No. 12/236

Subject:

English

Publication Date:

September 28, 2012

ISBN/ISSN:

9781475524673/1018-5941

Stock No:

WPIEA2012236

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

49

Please address any questions about this title to publications@imf.org