On the brink? Intra-euro area imbalances and the sustainability of foreign debt
AbstractIn this paper we study the intra-euro area imbalances based on a dynamic general equilibrium model. We show that European financial integration and the introduction of the euro might have contributed to the development of imbalances. Interest rate convergence following EMU accession led to net foreign debt positions, which prove difficult to reverse. Simulation results for the euro area suggest that current account imbalances and foreign debt positions of today's crisis countries have significantly diverged from a sustainable path. Increasing investment in the EMU core and productivity in crisis countries may permit a return to sustainable foreign debt levels and correct macroeconomic imbalances in the euro area. --
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Bibliographic InfoPaper provided by University of Leipzig, Faculty of Economics and Management Science in its series Working Papers with number 109.
Date of creation: 2012
Date of revision:
current account imbalances; euro area; foreign debt; sustainability; general equilibrium model;
Other versions of this item:
- Finn Marten Körner & Holger Zemanek, 2013. "On the Brink? Intra-euro Area Imbalances and the Sustainability of Foreign Debt," Review of International Economics, Wiley Blackwell, vol. 21(1), pages 18-34, 02.
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-08-23 (All new papers)
- NEP-EEC-2012-08-23 (European Economics)
- NEP-MAC-2012-08-23 (Macroeconomics)
- NEP-OPM-2012-08-23 (Open Economy Macroeconomics)
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