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Europe and Global Imbalances

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Author Info

  • Philip R. Lane
  • Gian-Maria Milesi-Ferretti

Abstract

Although Europe in the aggregate is a not a major contributor to global current account imbalances, its trade and financial linkages with the rest of the world mean that it will still be affected by a shift in the current configuration of external deficits and surpluses. We assess the macroeconomic impact on Europe of global current account adjustment under alternative scenarios, emphasizing both trade and financial channels. Finally, we consider heterogeneous exposure across individual European economies to external adjustment shocks.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/144.

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Length: 59
Date of creation: 01 Jun 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/144

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Keywords: Capital flows; Current account balances; current account; foreign assets; net foreign assets; currency composition; exchange rates; net foreign asset; foreign asset; financial integration; external liabilities; international financial; current account deficit; foreign asset positions; current account adjustment; net foreign asset positions; current account balance; net foreign asset position; foreign asset position; net debt; domestic currency; international financial integration; international investment; globalization; current account deficits; foreign exchange; trade patterns; balance of payments; bilateral trade; public debt; reserve bank; current accounts; foreign liabilities; international finance; current account surpluses; net external liabilities; direction of trade statistics; central banks; financial globalization; international trade; current account surplus; central bank; international balance sheet; external borrowing; reserve currency; financial markets; net debtor; global liquidity; debtor countries; debtor country; economic integration; debt service; international financial markets; external shocks; global markets; external debt; net external debt; short-term debt; currency debt; foreign debt; economic globalization; international borrowing; global integration; domestic investors; net debtors; return on foreign assets; long-term debt; government debt; debt-equity; international financial flows; debt accumulation; trade integration; domestic currencies;

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References

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  1. International Monetary Fund, 2005. "New Rates From New Weights," IMF Working Papers 05/99, International Monetary Fund.
  2. Nicolas Coeurdacier, 2006. "Do trade costs in goods market lead to home bias in equities?," 2006 Meeting Papers 111, Society for Economic Dynamics.
  3. Fabio Ghironi & Jaewoo Lee & Alessandro Rebucci, 2006. "The Valuation Channel of External Adjustment," 2006 Meeting Papers 195, Society for Economic Dynamics.
  4. Pierre-Olivier Gourinchas & Hélène Rey, 2005. "International financial adjustment," Proceedings, Federal Reserve Bank of San Francisco.
  5. Hamid Faruqee & Douglas Laxton & Dirk Muir & Paolo A. Pesenti, 2007. "Smooth Landing or Crash? Model-Based Scenarios of Global Current Account Rebalancing," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 377-456 National Bureau of Economic Research, Inc.
  6. Olivier Blanchard & Francesco Giavazzi & Filipa Sa, 2005. "International Investors, the U.S. Current Account, and the Dollar," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(1), pages 1-66.
  7. Erceg, Christopher & Guerriei, Luca & Gust, Christopher, 2006. "SIGMA: A New Open Economy Model for Policy Analysis," MPRA Paper 813, University Library of Munich, Germany.
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  9. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 1999. "The External Wealth of Nations: Measures of Foreign Assets and Liabilities for Industrial and Developing Countries," CEPR Discussion Papers 2231, C.E.P.R. Discussion Papers.
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  12. Akito Matsumoto & Charles Engel, 2005. "Portfolio Choice in a Monetary Open-Economy DSGE Model," IMF Working Papers 05/165, International Monetary Fund.
  13. Viceira, Luis & Serfaty-de Medeiros, Karine & Campbell, John, 2009. "Global Currency Hedging," Scholarly Articles 3153308, Harvard University Department of Economics.
  14. Charles P. Thomas & Francis E. Warnock & Jon Wongswan, 2004. "The performance of international portfolios," International Finance Discussion Papers 817, Board of Governors of the Federal Reserve System (U.S.).
  15. Francis E. Warnock, 2006. "How Might a Disorderly Resolution of Global Imbalances Affect Global Wealth?," IMF Working Papers 06/170, International Monetary Fund.
  16. Michele Cavallo & Cedric Tille, 2006. "Could capital gains smooth a current account rebalancing?," Staff Reports 237, Federal Reserve Bank of New York.
  17. Martin, Philippe & Rey, Hélène, 1999. "Financial Integration and Asset Returns," CEPR Discussion Papers 2282, C.E.P.R. Discussion Papers.
  18. Hamid Faruqee & Douglas Laxton & Dirk Muir & Paolo Pesenti, 2006. "Would protectionism defuse global imbalances and spur economic activity?: a scenario analysis," Staff Reports 268, Federal Reserve Bank of New York.
  19. Olivier Blanchard & Francesco Giavazzi & Filipa Sa, 2005. "The U.S. Current Account and the Dollar," NBER Working Papers 11137, National Bureau of Economic Research, Inc.
  20. Honohan, Patrick & Lane, Philip R, 1999. "Pegging to the Dollar and the Euro," International Finance, Wiley Blackwell, vol. 2(3), pages 379-410, November.
  21. Harald Hau & Hélène Rey, 2006. "Exchange Rates, Equity Prices, and Capital Flows," Review of Financial Studies, Society for Financial Studies, vol. 19(1), pages 273-317.
  22. Paul Krugman, 2007. "Will there be a dollar crisis?," Economic Policy, CEPR & CES & MSH, vol. 22, pages 435-467, 07.
  23. Richard H. Clarida, 2007. "G7 Current Account Imbalances: Sustainability and Adjustment," NBER Books, National Bureau of Economic Research, Inc, number clar06-2.
  24. Cedric Tille, 2003. "The impact of exchange rate movements on U.S. foreign debt," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 9(Jan).
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Citations

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Cited by:
  1. Nicolas Stoffels & Cédric Tille, 2007. "Why are Switzerland's foreign assets so low? The growing financial exposure of a small open economy," Staff Reports 283, Federal Reserve Bank of New York.
  2. Nicolas Coeurdacier & Robert Kollmann & Philippe Martin, 2009. "International Portfolios with Supply, Demand and Redistributive Shocks," NBER Chapters, in: NBER International Seminar on Macroeconomics 2007, pages 231-263 National Bureau of Economic Research, Inc.
  3. Fritz Breuss & Werner Roeger & Jan in 't Veld, 2008. "Global Impact of a Shift in Foreign Reserves to Euros," European Economy - Economic Papers 345, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  4. Gian Maria Milesi-Ferretti & Philip Lane, 2011. "External Adjustment and the Global Crisis," The Institute for International Integration Studies Discussion Paper Series iiisdp369, IIIS.
  5. Traistaru-Siedschlag, Iulia, 2007. "Macroeconomic Adjustment in Ireland under the EMU," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI), vol. 2007(1-Spring), pages 78-92.
  6. Lane, Philip R., 2006. "The Swedish External Position and the Krona," Working Paper Series 200, Sveriges Riksbank (Central Bank of Sweden).
  7. Guy Meredith, 2007. "Debt Dynamics and Global Imbalances," IMF Working Papers 07/4, International Monetary Fund.
  8. International Monetary Fund, 2010. "European Financial Linkages: A New Look at Imbalances," IMF Working Papers 10/295, International Monetary Fund.
  9. Luigi Bonatti & Andrea Fracasso, 2013. "Origins and prospects of the Euro existential crisis," DEM Discussion Papers 2013/03, Department of Economics and Management.
  10. Philip R. Lane, 2008. "The Macroeconomics of Financial Integration: A European Perspective," The Institute for International Integration Studies Discussion Paper Series iiisdp265, IIIS.
  11. Ranaldo, Angelo, 2009. "Segmentation and time-of-day patterns in foreign exchange markets," Journal of Banking & Finance, Elsevier, vol. 33(12), pages 2199-2206, December.
  12. Luigi Bonatti & Andrea Fracasso, 2013. "The German Model and the European Crisis," Journal of Common Market Studies, Wiley Blackwell, vol. 51(6), pages 1023-1039, November.

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