External Imbalances in the Euro Area
Abstract
The paper examines the extent to which current account imbalances of euro area countries are related to intra-euro area factors and to external trade shocks. We argue that the traditional explanations for the rising imbalances are correct, but are incomplete. We uncover a large impact of declines in export competitiveness and asymmetric trade developments vis-Ã -vis the rest of the world -in particular vis-Ã -vis China, Central and Eastern Europe, and oil exporters- on the external balance of euro area debtor countries. While current account imbalances of euro area deficit countries vis-Ã -vis the rest of the world increased, they were financed mostly by intra-euro area capital inflows (in particular by the purchase of government and financial institutions' securities, and cross-border interbank lending) which permitted external imbalances to grow over time.Download Info
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Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/236.Length: 50
Date of creation: 28 Sep 2012
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Handle: RePEc:imf:imfwpa:12/236
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Keywords: Capital inflows; Current account deficits; Debtor countries; Economic integration; Europe; European Economic and Monetary Union; Exchange rate appreciation; Export competitiveness; External debt; External shocks; Real effective exchange rates; Terms of trade; euro area; external imbalances; financial integration; terms of trade shocks.;This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-02-16 (All new papers)
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