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How Do Macroeconomic Imbalances Interact? Evidence From A Panel Var Analysis

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  • Gnimassoun, Blaise
  • Mignon, Valérie

Abstract

This paper investigates the interactions between three key macroeconomic imbalances, namely current-account discrepancies (external imbalances), output gaps (internal imbalances), and exchange-rate misalignments. We estimate a panel VAR model for a sample of 22 industrialized countries over the period 1980–2011. Our findings show that macroeconomic imbalances strongly interact through a causal relationship. If current-account disequilibria threaten the stability of the global economy, their origin can be found in internal imbalances and exchange-rate misalignments: positive output-gap shocks as well as currency overvaluation deepen current-account deficits. In addition, although variations in external imbalances mainly result from exchange-rate misalignments in the euro area, they are mostly explained by output gaps for non-eurozone members.

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  • Gnimassoun, Blaise & Mignon, Valérie, 2016. "How Do Macroeconomic Imbalances Interact? Evidence From A Panel Var Analysis," Macroeconomic Dynamics, Cambridge University Press, vol. 20(7), pages 1717-1741, October.
    • Handle: RePEc:cup:macdyn:v:20:y:2016:i:07:p:1717-1741_00
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    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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