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Reverse causality in global current accounts

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  • Schnabl, Gunther
  • Freitag, Stephan

Abstract

The paper discusses global imbalances under the aspect of an asymmetric world monetary system. It identifies the US and Germany as center countries with rising / high current account deficits (US) and surpluses (Germany). These are matched by current account surpluses of countries stabilizing their exchange rates against the dollar (dollar periphery) and current account deficits of countries stabilizing their exchange rate against the euro (euro periphery). Meanwhile, the aggregate current account balance of the euro area has been by and large balanced. The paper finds that changes of world current account positions are affected by the macroeconomic policy decisions both in the centers and peripheries, albeit the centers – due to structural characteristics related to size – are argued to have a higher degree of freedom in macroeconomic policy making. In specific, expansionary monetary policy in the US as well as exchange rate stabilization and sterilization policies in the dollar periphery are found to have contributed to global current account imbalances. Given that the sample period for the analysis extends from 1981-2008, the results for Germany mostly capture the situation before the euro was created. JEL Classification: F31, F32

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 1208.

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Date of creation: Jun 2010
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Handle: RePEc:ecb:ecbwps:20101208

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Related research

Keywords: Asymmetric World Monetary System; global imbalances; Granger Causality Tests; International Currency; Sterilization; Twin Deficit; Twin Surplus;

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References

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  1. Christophe Hurlin & Baptiste Venet, 2008. "Financial Development and Growth: A Re-Examination using a Panel Granger Causality Test," Working Papers halshs-00319995, HAL.
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Citations

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Cited by:
  1. Schnabl, Gunther, 2013. "The global move into the zero interest rate and high debt trap," Working Papers 121, University of Leipzig, Faculty of Economics and Management Science.
  2. Ilir MITEZA, 2012. "Fiscal Deficits, Current Deficits and Investment: A Panel Causality Framework of 20 OECD countries," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 12(1).
  3. Gunther Schnabl, 2011. "The role of the chinese dollar peg for macroeconomic stability in China and the world economy," Global Financial Markets Working Paper Series 13-2010, Friedrich-Schiller-University Jena.
  4. Ronald McKinnon & Gunther Schnabl, 2012. "China and Its Dollar Exchange Rate: A Worldwide Stabilising Influence?," The World Economy, Wiley Blackwell, vol. 35(6), pages 667-693, 06.
  5. Andreas Hoffmann & Gunther Schnabl, 2011. "National Monetary Policy, Internatinal Economic Instability and Feeback Effects - An Overinvestment View," Global Financial Markets Working Paper Series 19-2011, Friedrich-Schiller-University Jena.
  6. Belke, Ansgar & Schnabl, Gunther, 2010. "Finanzkrise, globale Liquidität und makroökonomischer Exit," IBES Diskussionsbeiträge 184, University of Duisburg-Essen, Faculty for Economics and Business Administration.
  7. Ansgar Belke & Niklas Potrafke, 2011. "Does Government Ideology Matter in Monetary Policy?: A Panel Data Analysis for OECD Countries," Discussion Papers of DIW Berlin 1180, DIW Berlin, German Institute for Economic Research.
  8. Gunther Schnabl & Holger Zemanek, 2010. "Inter-temporal Savings, Current Account Dynamics and Asymmetric Shocks in a Heterogeneous European Monetary Union," CESifo Working Paper Series 3279, CESifo Group Munich.

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