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Is the European debt crisis a mere balance of payments crisis?

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  • Guerreiro, David

Abstract

This paper is interested in linking formally external disequilibrium to the sovereign debt crisis which the EMU is experiencing since 2009. Relying on the CHEER approach that connects the goods market to the capital market, we show that when a country belonging to a monetary union faces external disequilibrium relative to its main partner, the corresponding interest rate differential increases. Moreover, when these imbalances are persistent, it may trigger a balance of payments crisis. Our findings indicate that this phenomenon seems to be at play for the European countries under international assistance.

Suggested Citation

  • Guerreiro, David, 2014. "Is the European debt crisis a mere balance of payments crisis?," Economic Modelling, Elsevier, vol. 44(S1), pages 50-56.
  • Handle: RePEc:eee:ecmode:v:44:y:2014:i:s1:p:s50-s56
    DOI: 10.1016/j.econmod.2014.04.029
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    Cited by:

    1. Mirdala, Rajmund & Ruščáková, Anna, 2015. "On Origins and Implications of the Sovereign Debt Crisis in the Euro Area," MPRA Paper 68859, University Library of Munich, Germany.

    More about this item

    Keywords

    Balance of payments crisis; CHEER; Debt crisis; External imbalances; Eurozone;

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G01 - Financial Economics - - General - - - Financial Crises

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