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How Do Macroeconomic Imbalances Interact? Evidence From A Panel Var Analysis

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  • Gnimassoun, Blaise
  • Mignon, Valérie

Abstract

This paper investigates the interactions between three key macroeconomic imbalances, namely current-account discrepancies (external imbalances), output gaps (internal imbalances), and exchange-rate misalignments. We estimate a panel VAR model for a sample of 22 industrialized countries over the period 1980–2011. Our findings show that macroeconomic imbalances strongly interact through a causal relationship. If current-account disequilibria threaten the stability of the global economy, their origin can be found in internal imbalances and exchange-rate misalignments: positive output-gap shocks as well as currency overvaluation deepen current-account deficits. In addition, although variations in external imbalances mainly result from exchange-rate misalignments in the euro area, they are mostly explained by output gaps for non-eurozone members.

Suggested Citation

  • Gnimassoun, Blaise & Mignon, Valérie, 2016. "How Do Macroeconomic Imbalances Interact? Evidence From A Panel Var Analysis," Macroeconomic Dynamics, Cambridge University Press, vol. 20(7), pages 1717-1741, October.
    • Handle: RePEc:cup:macdyn:v:20:y:2016:i:07:p:1717-1741_00
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    Cited by:

    1. Shibata, Akihisa & Shintani, Mototsugu & Tsuruga, Takayuki, 2019. "Current account dynamics under information rigidity and imperfect capital mobility," Journal of International Money and Finance, Elsevier, vol. 92(C), pages 153-176.
    2. Nchofoung, Tii N., 2022. "Trade shocks and labour market resilience in Sub-Saharan Africa: Does the franc zone response differently?," International Economics, Elsevier, vol. 169(C), pages 161-174.
    3. Comunale, Mariarosaria, 2022. "A panel VAR analysis of macro-financial imbalances in the EU," Journal of International Money and Finance, Elsevier, vol. 121(C).
    4. Alexandre Henry, 2019. "Monetary Union, Competitiveness and Raw Commodity Dependence: Insights from Africa," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 61(2), pages 285-301, June.
    5. Tran, Thi Anh-Dao & Phi, Minh Hong & Thai, Long, 2020. "Global value chains and the missing link between exchange rates and export diversification," International Economics, Elsevier, vol. 164(C), pages 194-205.
    6. Jawadi, Fredj & Rozin, Philippe & Bourghelle, David, 2023. "Insights into CO2 emissions in Europe in the context of COVID-19: A panel data analysis," International Economics, Elsevier, vol. 173(C), pages 164-174.
    7. Jorge Carrera & Blaise Gnimassoun & Valérie Mignon & Romain Restout, 2021. "Currency Misalignments and Exchange Rate Regimes in Latin American Countries: A Trade-Off Issue," Annals of Economics and Statistics, GENES, issue 141, pages 71-102.
    8. Florian Morvillier, 2018. "On the impact of the launch of the euro on EMU macroeconomic vulnerability," EconomiX Working Papers 2018-51, University of Paris Nanterre, EconomiX.
    9. Juan Carlos Cuestas & Javier Ordóñez & Karsten Staehr, 2019. "Unit labour costs and the dynamics of output and unemployment in the southern European crisis countries," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 46(3), pages 597-616, August.
    10. Florian Morvillier, 2018. "On the impact of the launch of the euro on EMU macroeconomic vulnerability," Working Papers hal-04141675, HAL.
    11. Schnücker, A.M., 2019. "Penalized Estimation of Panel Vector Autoregressive Models," Econometric Institute Research Papers EI-2019-33, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    12. Zhongdong Yu & Wei Liu & Liming Chen & Serkan Eti & Hasan Dinçer & Serhat Yüksel, 2019. "The Effects of Electricity Production on Industrial Development and Sustainable Economic Growth: A VAR Analysis for BRICS Countries," Sustainability, MDPI, vol. 11(21), pages 1-13, October.
    13. Lena Dräger & Theoplasti Kolaiti & Philipp Sibbertsen, 2023. "Measuring macroeconomic convergence and divergence within EMU using long memory," Empirical Economics, Springer, vol. 65(5), pages 2333-2356, November.
    14. Polat, Tandogan, 2016. "Essays on banking sector’s dynamics, expectations, preferences and impact," Other publications TiSEM d064f029-f91e-47bc-b6d3-0, Tilburg University, School of Economics and Management.
    15. Fredj Jawadi & Abdoulkarim Idi Cheffou & Nabila Jawadi, 2016. "Do Islamic and Conventional Banks Really Differ? A Panel Data Statistical Analysis," Open Economies Review, Springer, vol. 27(2), pages 293-302, April.
    16. Claire Giordano, 2021. "How frequent a BEER? Assessing the impact of data frequency on real exchange rate misalignment estimation," Scottish Journal of Political Economy, Scottish Economic Society, vol. 68(3), pages 365-404, July.
    17. Dessie Ambaw & Madhavi Pundit & Arief Ramayandi & Nicholas Sim, 2023. "Real exchange rate misalignment and business cycle fluctuations in the Asia‐Pacific," Asian Economic Journal, East Asian Economic Association, vol. 37(2), pages 164-189, June.
    18. Nur Feriyantoa, 2020. "Determinants of the Indonesia's current account balance: an error correction model approach," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 7(4), pages 3410-3425, June.
    19. Camba-Crespo Alfonso & García-Solanes José & Torrejón-Flores Fernando, 2022. "Current-Account Imbalances, Real Exchange-Rate Misalignments, and Output Gaps," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 16(1), pages 57-72, January.
    20. Oguzhan Ozcelebi & Nurtac Yildirim, 2017. "Interrelations Between External and Internal Macroeconomic Factors: Empirical Evidence on Some OECD Countries," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 15(2), pages 147-174.
    21. Thi Anh-Dao Tran & Minh Hong Phi & Long Thai, 2020. "Global value chains and the missing link between exchange rates and export diversification," Post-Print halshs-02972341, HAL.
    22. Amat Adarov, 2019. "Dynamic Interactions Between Financial and Macroeconomic Imbalances: A Panel VAR Analysis," wiiw Working Papers 162, The Vienna Institute for International Economic Studies, wiiw.
    23. Hyun-Jee Kim & Bongsuk Sung, 2020. "How Knowledge Assets Affect the Learning-by-Exporting Effect: Evidence Using Panel Data for Manufacturing Firms," Sustainability, MDPI, vol. 12(8), pages 1-14, April.

    More about this item

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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