External Imbalances in the Euro Area

Author/Editor: Ruo Chen ; Gian-Maria Milesi-Ferretti ; Thierry Tressel
Publication Date: September 28, 2012
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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(s): Capital inflows | Current account deficits | Debtor countries | Economic integration | Europe | European Economic and Monetary Union | Exchange rate appreciation | Export competitiveness | External debt | External shocks | Real effective exchange rates | Terms of trade

Publication Date: September 28, 2012
ISBN/ISSN: 9781475524673/1018-5941 Format: Paper
Stock No: WPIEA2012236 Pages: 49
US$18.00 (Academic Rate:
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