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The magnitude of euro area misalignments

Author

Listed:
  • Bruno Ducoudre

    (Observatoire français des conjonctures économiques)

  • Xavier Timbeau

    (Observatoire français des conjonctures économiques)

  • Sébastien Villemot

    (Ecole d'Économie de Paris - Paris School of Economics)

Abstract

Using real equilibrium exchange rate modelling, we quantify adjustments within the euro area compatible with a current account equilibrium and a stabilisation of the net external positions of t he euro area countries. Our estimates indicate that the imbalances have shrunk since 2008, but substantial misalignments remain, and the average (absolute) mismatch relative to the euro price level amounts to 10% in 2017. The imbalances now weigh on the external equilibrium of the euro area and are increasing the risk of a medium -term appreciation in the euro. These results are robust to hypotheses on the horizon of adjustment, potential growth, output gaps and real interest rates.

Suggested Citation

  • Bruno Ducoudre & Xavier Timbeau & Sébastien Villemot, 2018. "The magnitude of euro area misalignments," Sciences Po publications 45, Sciences Po.
    • Handle: RePEc:spo:wpmain:info:hdl:2441/254n423ih78cnainj42ued3i28
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Equilibrium exchange rate; Trade balance; Price competitiveness;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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