The Evolution of Current Account Deficits in the Euro Area Periphery and the Baltics : Many Paths to the Same Endpoint

Author/Editor: Joong Shik Kang ; Jay C. Shambaugh
Publication Date: July 17, 2013
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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: Explanations of the large current account deficits for the euro area periphery and the Baltics in the run up to the crisis revolve around two main factors: deteriorating export performance or demand driven booms. We add that there were important movements in transfers and net income balances. While export performance remained relatively stable in most countries, for some countries, when transfers declined, households and firms borrowed so as to maintain the same level of spending. This was part of a persistent failure to adjust to trade deficits, which, along with rising net income payments, led to growing current account deficits. All of these factors played varying roles in the development of current account deficits across these countries.
Series: Working Paper No. 13/169
Subject(s): Current account deficits | Euro Area | Greece | Portugal | Spain | Ireland | Baltics | Exports | Imports | Cross country analysis

Publication Date: July 17, 2013
ISBN/ISSN: 9781475594270/1018-5941 Format: Paper
Stock No: WPIEA2013169 Pages: 23
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