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Current Account Imbalances and Financial Integration in the Euro Area

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  • Schmitz, Birgit
  • von Hagen, Jürgen

Abstract

While the current account of 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 and show that these net flows follow differences in per-capita incomes. Our results show that the elasticity with respect to per-capita incomes of net capital flows between euro-area countries and the euro area has increased. This is not the case for net capital flows between non-euro area countries and the euro area, nor for euro-area countries and the rest of the world. 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 lead to some financial diversion.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7262.

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Date of creation: Apr 2009
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Handle: RePEc:cpr:ceprdp:7262

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Keywords: Current Account Imbalances; European Monetary Union; Financial Integration;

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Citations

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Cited by:
  1. Jörg Decressin & Emil Stavrev, 2009. "Current Accounts in a Currency Union," IMF Working Papers 09/127, International Monetary Fund.
  2. Stefan Kooths & Björn van Roye, 2012. "Euro Area: Single Currency - National Money Creation," Kiel Working Papers 1787, Kiel Institute for the World Economy.
  3. Kooths, Stefan & van Roye, Björn, 2012. "Nationale Geldschöpfung im Euroraum: Mechanismen, Defekte, Therapie," Kiel Discussion Papers 508/509, Kiel Institute for the World Economy (IfW).
  4. Brissimis, Sophocles & Hondroyiannis, George & Papazoglou, Christos & Tsaveas, Nicholas & Vasardani, Melina, 2011. "The determinants of current account imbalances in the Euro Area: a panel estimation approach," MPRA Paper 35362, University Library of Munich, Germany.
  5. Wilhem Hankel & Andreas Hauskrecht & Bryan Stuart, 2010. "The Euro-Project at Risk," Working Papers 2010-05, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  6. Engelbert Stockhammer & Dimitris P. Sotiropoulos, 2012. "The costs of rebalancing the Euro area," Working Papers PKWP1206, Post Keynesian Economics Study Group (PKSG).
  7. International Monetary Fund, 2010. "European Financial Linkages," IMF Working Papers 10/295, International Monetary Fund.
  8. Spahn, Peter, 2012. "Integration durch Währungsunion? Der Fall der Euro-Zone," FZID Discussion Papers 57-2012, University of Hohenheim, Center for Research on Innovation and Services (FZID).
  9. Berger, Helge & Nitsch, Volker, 2014. "Wearing corset, losing shape: The euro's effect on trade imbalances," Journal of Policy Modeling, Elsevier, vol. 36(1), pages 136-155.

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