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Current Accounts in a Currency Union

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  • Jörg Decressin
  • Emil Stavrev

Abstract

A fear about EMU was that in the absence of national currencies, country-specific shocks would result in greater current account divergences between member states. This paper finds that divergences across euro-area countries are smaller and have not risen relative to those across 13 other advanced economies with more flexible exchange rates. Also, the size of country-specific current account shocks in EMU countries is smaller and their persistence is greater than in the other advanced economies. However, these differences in current account dynamics do not appear related to different exchange rate dynamics.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/127.

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Length: 23
Date of creation: 01 Jun 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/127

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Keywords: Economic models; External shocks; Real effective exchange rates; Regional shocks; current account; exchange rate; current accounts; real exchange rate; current account balance; current account shocks; exchange rates; current account balances; current account dynamics; exchange rate changes; effective exchange rate; real effective exchange rate; current account imbalances; exchange rate dynamics; exchange rate rigidity; real exchange rates; effective exchange rates; exchange rate regimes; exchange rate shocks; real exchange rate dynamics; flexible exchange rates; exchange rate regime; current account adjustment; real exchange rate changes; current account deficits; exchange rate mechanisms; exchange rate volatility; fluctuation margins; capital account; current account responses; bilateral exchange rates; flexible exchange rate regime; exchange rate systems; exchange rate movements; fixed exchange rate regimes; fixed exchange rate; capital account openness; exchange rate developments; flexible exchange rate; exchange rate flexibility; exchange rate crisis;

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References

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  1. Charles Wyplosz, 1997. "EMU: Why and How It Might Happen," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 11(4), pages 3-21, Fall.
  2. Jaewoo Lee & Yongsung Chang & Sun-Bin Kim, 2009. "Accounting for Global Dispersion of Current Accounts," IMF Working Papers 09/276, International Monetary Fund.
  3. Breitung, Jörg & Eickmeier, Sandra, 2005. "Dynamic factor models," Discussion Paper Series 1: Economic Studies 2005,38, Deutsche Bundesbank, Research Centre.
  4. Menzie D. Chinn & Shang-Jin Wei, 2009. "A Faith-based Initiative: Does a Flexible Exchange Rate Regime Really Facilitate Current Account Adjustment?," Working Papers, Hong Kong Institute for Monetary Research 122009, Hong Kong Institute for Monetary Research.
  5. Ca' Zorzi, Michele & Rubaszek, Michał, 2008. "On the empirical evidence of the intertemporal current account model for the euro area countries," Working Paper Series, European Central Bank 0895, European Central Bank.
  6. Jaewoo Lee & Jonathan David Ostry & Alessandro Prati & Luca Antonio Ricci & Gian-Maria Milesi-Ferretti, 2008. "Exchange Rate Assessments," IMF Occasional Papers 261, International Monetary Fund.
  7. Schmitz, Birgit & von Hagen, Jürgen, 2009. "Current Account Imbalances and Financial Integration in the Euro Area," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7262, C.E.P.R. Discussion Papers.
  8. Filippo Altissimo & Michael Ehrmann & Frank Smets, 2006. "Inflation persistence and price-setting behaviour in the euro area – a summary of the IPN evidence," Occasional Paper Series 46, European Central Bank.
  9. Hamid Faruqee & Jaewoo Lee, 2009. "Global Dispersion of Current Accounts: Is the Universe Expanding?," IMF Staff Papers, Palgrave Macmillan, vol. 56(3), pages 574-595, August.
  10. Higgins, Matthew, 1998. "Demography, National Savings, and International Capital Flows," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 343-69, May.
  11. Angeloni, Ignazio & Ehrmann, Michael, 2004. "Euro area inflation differentials," Working Paper Series, European Central Bank 0388, European Central Bank.
  12. Giannone, Domenico & Reichlin, Lucrezia, 2006. "Trends and cycles in the euro area: how much heterogeneity and should we worry about it?," Working Paper Series, European Central Bank 0595, European Central Bank.
  13. Emil Stavrev, 2007. "Growth and Inflation Dispersions in EMU," IMF Working Papers 07/167, International Monetary Fund.
  14. Alan Ahearne & Jean Pisani-Ferry, 2006. "The Euro: only for the agile," Policy Briefs 42, Bruegel.
  15. Olivier Blanchard & Francesco Giavazzi, 2002. "Current Account Deficits in the Euro Area: The End of the Feldstein Horioka Puzzle?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2), pages 147-210.
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