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Current Account Imbalances in the Euro Area (draft version)

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Author Info

  • Alan Ahearne
  • Brigit Schmitz
  • Jürgen von Hagen

Abstract

The dispersion in current account balances among countries in the euro area has widened markedly over the past decade-and-a-half, and especially since 1999. We decompose current account positions for euro area countries into intra-euro-area balances and extra-euroarea balances and examine the determinants of these balances. Regarding intra-euro-area balances, we present evidence that capital tends to flow from high-income euro area economies to low-income euro area economies. These flows have increased since the creation of the single currency in Europe.We construct a novel data set regarding extra-euro-area balances. The data set contains, for the euro area and the most important member economies, exports and imports to and from the 10 respective most important trade partners outside the euro area. This allows us to study the determinants of the extra-euro current account and its interaction with intra-euro area trade balances. We estimate a model of the trade balance of the euro area and individual euro-area countries with the rest of the world. We find that a real appreciation of the euro against the currencies of its main trading partners appears to have a substantial effect on the euro area’s net exports in the long run, though the immediate effect is small. Our estimates for individual countries suggest that the adjustment to a real appreciation of the euro would not be equally distributed across euro-area countries. In particular, Germany would bear the largest share of the adjustment, while the other large euro-area economies would be relatively unaffected. Finally, we find that the introduction of the euro seems to have changed the dynamics of trade balance adjustment in three of the larger euro-area economies.

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Bibliographic Info

Paper provided by CASE-Center for Social and Economic Research in its series CASE Network Studies and Analyses with number 0345.

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Length: 45 Pages
Date of creation: 2007
Date of revision:
Handle: RePEc:sec:cnstan:0345

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Related research

Keywords: global imbalances; EMU; real exchange rates; trade balances;

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Cited by:
  1. Criste, Adina & Mosneanu, Elena Ana, 2009. "Effects Induced By The Global Economic And Financial Crisis In The New Eu Member States," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 13(4), pages 154-161.
  2. Berger, Helge & Nitsch, Volker, 2014. "Wearing corset, losing shape: The euro's effect on trade imbalances," Journal of Policy Modeling, Elsevier, vol. 36(1), pages 136-155.
  3. Arnold, Ivo J.M. & Roelands, Sebastian, 2010. "The demand for euros," Journal of Macroeconomics, Elsevier, vol. 32(2), pages 674-684, June.
  4. Alan Ahearne & Juan Delgado & Jakob von Weizsäcker, 2008. "A tail of two countries," Policy Briefs 6, Bruegel.
  5. Ohr, Renate & Zeddies, Götz, 2010. ""Geschäftsmodell Deutschland" und außenwirtschaftliche Ungleichgewichte in der EU," Center for European, Governance and Economic Development Research Discussion Papers 110, University of Goettingen, Department of Economics.
  6. Katsimi, Margarita & Moutos, Thomas, 2010. "EMU and the Greek crisis: The political-economy perspective," European Journal of Political Economy, Elsevier, vol. 26(4), pages 568-576, December.

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