Structural Breaks and Current Accounts in Three Clubs of Eurozone Countries

Since adopting the single currency, the current accounts of eurozone countries have experienced imbalances both within the eurozone and for the eurozone as a whole. To address these issues, we analyse the long‐term determinants (structural and policy‐driven) of the current accounts of 10 member countries using data from 1980 to 2023. We categorise the countries into three clusters on the basis of statistical and graphical methods and identify three subperiods separated by two endogenous structural breaks. Then, we use Bayesian Model Averaging to select the most robust determinants of current accounts and run feasible generalised least squares (FGLS) and Fully Modified Ordinary Least Squares (FMOLS) panel regressions to estimate the current account equations for each group and subperiod. On the basis of these results, we propose solutions for the two types of current account imbalances mentioned earlier, targeting the governments of countries most likely to generate imbalances.