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Abstract

This paper quantifies and discusses the concept of current account imbalances in the Eurozone. Using panel data estimations, the analysis shows how the external positions of the Eurozone economies can be modelled as a function of divergences in unit labour costs. Specifically, the results indicate that the formation of EMU has exacerbated the extent to which even relatively small divergences in unit labour costs may materialize in large current account imbalances. These results are framed in the context of the idea of a debt snowball effect and why the idea of an internal devaluation as a tool to correct external imbalances is inconsistent with the current setup of the Eurozone.

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File URL: http://mpra.ub.uni-muenchen.de/22943/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 22943.

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Date of creation: 28 May 2010
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Handle: RePEc:pra:mprapa:22943

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Related research

Keywords: The Eurozone; Debt snowball; Current Account Imbalances; EMU;

Find related papers by JEL classification:

• E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
• F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
• J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
• H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

This paper has been announced in the following NEP Reports:

• NEP-ALL-2010-06-04 (All new papers)
• NEP-EEC-2010-06-04 (European Economics)

References

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1. Steinar Holden & Fredrik Wulfsberg, 2008. "Downward Nominal Wage Rigidity in the OECD," The B.E. Journal of Macroeconomics, De Gruyter, vol. 8(1), pages 15.
   
   • Holden, Steinar & Wulfsberg, Fredrik, 2005. "Downward Nominal Wage Rigidity in the OECD," Memorandum 10/2005, Oslo University, Department of Economics.
   • Steinar Holden & Fredrik Wulfsberg, 2007. "Downward nominal wage rigidity in the OECD," Working Paper Series 777, European Central Bank.
   • Steinar Holden & Fredrik Wulfsberg, 2007. "Downward Nominal Wage Rigidity in the OECD," CESifo Working Paper Series 2009, CESifo Group Munich.
2. Zemanek, Holger & Belke, Ansgar & Schnabl, Gunther, 2009. "Current Account Imbalances and Structural Adjustment in the Euro Area: How to Rebalance Competitiveness," IZA Policy Papers 7, Institute for the Study of Labor (IZA).
   
   • Holger Zemanek & Ansgar Belke & Gunther Schnabl, 2009. "Current Account Imbalances and Structural Adjustment in the Euro Area: How to Rebalance Competitiveness," CESifo Working Paper Series 2639, CESifo Group Munich.
   • Holger Zemanek & Ansgar Belke & Gunther Schnabl, 2009. "Current Account Imbalances and Structural Adjustment in the Euro Area: How to Rebalance Competitiveness," Discussion Papers of DIW Berlin 895, DIW Berlin, German Institute for Economic Research.
3. Knoppik, Christoph & Beissinger, Thomas, 2005. "Downward Nominal Wage Rigidity in Europe: An Analysis of European Micro Data from the ECHP 1994-2001," IZA Discussion Papers 1492, Institute for the Study of Labor (IZA).
   
   • Christoph Knoppik & Thomas Beissinger, 2009. "Downward nominal wage rigidity in Europe: an analysis of European micro data from the ECHP 1994–2001," Empirical Economics, Springer, vol. 36(2), pages 321-338, May.
   • Thomas Beissinger & Christoph Knoppik, 2006. "Downward Nominal Wage Rigidity in Europe: An Analysis of European Micro Data from the ECHP 1994-2001," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 275/2006, Department of Economics, University of Hohenheim, Germany.
   • Knoppik, Christoph & Beissinger, Thomas, 2005. "Downward Nominal Wage Rigidity in Europe: An Analysis of European Micro Data from the ECHP 1994-2001," University of Regensburg Working Papers in Business, Economics and Management Information Systems 402, University of Regensburg, Department of Economics.
4. Alan Ahearne & Jean Pisani-Ferry, 2006. "The Euro: only for the agile," Policy Briefs 42, Bruegel.
5. Joseph G. Altonji & Paul J. Devereux, 1999. "The Extent and Consequences of Downward Nominal Wage Rigidity," NBER Working Papers 7236, National Bureau of Economic Research, Inc.
   
   • Devereux, Paul J. & Altonji, Joseph G., 2000. "The extent and consequences of downward nominal wage rigidity," Open Access publications from University College Dublin urn:hdl:10197/311, University College Dublin.

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