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Current account imbalances and financial integration in the euro area

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  • Schmitz, Birgit
  • von Hagen, Jürgen
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    Abstract

    While the current account of the euro area as a whole has remained almost balanced in the past two decades, several member countries have sizeable deficits or surpluses. In this paper, we interpret these imbalances as indicators of net capital flows among the euro-area countries. We distinguish between balances against the euro zone and the rest of the world and examine these for the EU-15 countries. We find that for euro members the net flows follow differences in per-capita incomes, even before the introduction of the euro. Our results show further that with the introduction of the common currency the elasticity with respect to per-capita incomes of net capital flows within the euro area has increased for the members of the euro zone. This increase can neither be observed for the flows between the euro members and the rest of the world nor for the flows between the countries that stayed outside the monetary union and the euro zone. We interpret this as evidence for increasing financial integration in the euro area. There is also some evidence suggesting that the introduction of the euro has led to some financial diversion.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of International Money and Finance.

    Volume (Year): 30 (2011)
    Issue (Month): 8 ()
    Pages: 1676-1695

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    Handle: RePEc:eee:jimfin:v:30:y:2011:i:8:p:1676-1695

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    Web page: http://www.elsevier.com/locate/inca/30443

    Related research

    Keywords: Financial integration; Current account imbalances; European monetary union;

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    Cited by:
    1. Gossé, Jean-Baptiste & Serranito, Francisco, 2014. "Long-run determinants of current accounts in OECD countries: Lessons for intra-European imbalances," Economic Modelling, Elsevier, vol. 38(C), pages 451-462.
    2. Claudia M. Buch, 2012. "From the Stability Pact to ESM - What next?," IAW Discussion Papers 85, Institut für Angewandte Wirtschaftsforschung (IAW).
    3. Stefan Ederer & Stefan Schiman, 2013. "Analyse der österreichischen Handelsbilanz," FIW Research Reports series V-003, FIW.
    4. Pietro Alessandrini & Michele Fratianni & Andrew Hughes Hallett & Andrea Presbitero, 2014. "External Imbalances and Fiscal Fragility in the Euro Area," Open Economies Review, Springer, vol. 25(1), pages 3-34, February.
    5. Angelini, Elisabetta Croci & Farina, Francesco, 2012. "Current account imbalances and systemic risk within a monetary union," Journal of Economic Behavior & Organization, Elsevier, vol. 83(3), pages 647-656.
    6. Sanchez , Jose Luis Diaz & Varoudakis, Aristomene, 2013. "Growth and competitiveness as factors of Eurozone external imbalances : evidence and policy implications," Policy Research Working Paper Series 6732, The World Bank.

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