IMF Working Papers

External Imbalances in the Euro Area

By Ruo Chen, Gian M Milesi-Ferretti, Thierry Tressel

September 28, 2012

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Ruo Chen, Gian M Milesi-Ferretti, and Thierry Tressel. External Imbalances in the Euro Area, (USA: International Monetary Fund, 2012) accessed December 2, 2024
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.

Subject: Demand elasticity, Economic theory, Exports, Foreign exchange, Imports, International trade, Real exchange rates, Trade balance

Keywords: Area country, Area debtor countries, Area export, Asia and Pacific, Debtor country, Demand elasticity, Demand elasticity, Euro, Euro area, Export, Exports, External imbalances, Financial integration, Imports, Real exchange rates, Southern Europe, Terms of trade, Terms of trade shocks, Trade balance, WP

Publication Details

  • Pages:

    49

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2012/236

  • Stock No:

    WPIEA2012236

  • ISBN:

    9781475524673

  • ISSN:

    1018-5941