External Imbalances in the Euro Area

 
Author/Editor: Chen, Ruo ; Milesi-Ferretti, Gian-Maria ; Tressel, Thierry
 
Publication Date: September 28, 2012
 
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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

 
English
Publication Date: September 28, 2012
ISBN/ISSN: 9781475524673/2227-8885 Format: Paper
Stock No: WPIEA2012236 Pages: 50
Price:
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