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What Drives the German Current Account ?And How Does It Affect Other EU Member States ?

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  • Robert Kollmann
  • Marco Ratto
  • Werner Roeger
  • Jan in'tVeld
  • Lukas Vogel

Abstract

We estimate a three-country model using 1995-2013 data for Germany, the Rest of the Euro Area (REA) and the Rest of the World (ROW) to analyze the determinants of Germany’s current account surplus after the launch of the Euro. The most important factors driving the German surplus were positive shocks to the German saving rate and to ROW demand for German exports, as well as German labour market reforms and other positive German aggregate supply shocks. The convergence of REA interest rates to German rates due to the creation of the Euro only had a modest effect on the German current account and on German real activity. The key shocks that drove the rise in the German current account tended to worsen the REA trade balance, but had a weak effect on REA real activity. Our analysis suggests these driving factors are likely to be slowly eroded, leading to a very gradual reduction of the German current account surplus. An expansion in German government consumption and investment would raise German GDP and reduce the current account surplus, but the effects on the surplus are likely to be weak.

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Bibliographic Info

Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers ECARES with number ECARES 2014-20.

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Length: 60 p.
Date of creation: Apr 2014
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Publication status: Published by:
Handle: RePEc:eca:wpaper:2013/159544

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Keywords: current account; intra-european imbalances; monetary union; eurozone crisis; estimated DSGE model;

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References

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Cited by:
  1. in 't Veld, Jan & Kollmann, Robert & Pataracchia, Beatrice & Ratto, Marco & Roeger, Werner, 2014. "International capital flows and the boom-bust cycle in Spain," Globalization and Monetary Policy Institute Working Paper 181, Federal Reserve Bank of Dallas.
  2. Campiglio, Luigi Pierfranco, 2014. "Unbundling the Great European Recession (2009-2013): Unemployment, Consumption, Investment, Inflation and Current Account," MPRA Paper 53002, University Library of Munich, Germany.

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