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Current accounts in the euro area: An intertemporal approach

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  • Campa, Jose Manuel
  • Gavilan, Angel

Abstract

Current accounts have diverged substantially among euro area countries since the creation of the euro. This divergence has raised concerns about the sustainability of some member countries' external indebtedness. This paper uses an intertemporal model of the current account to analyze the fluctuations in current account balances experienced by euro area countries over the last three decades and to disentangle its determinants. We find that the model is not rejected for six of the ten euro area countries examined (Belgium, France, Italy, Netherlands, Portugal and Spain), although it tends to underestimate their current account volatility. For these countries, we derive the expectations about future income and relative prices, which, according to the model, underlie their current account balances. Expectations about future growth increased in all Southern European countries at the creation of the euro, but they diverged considerably by 2005. While in Portugal these expectations were below its historical mean by then, in Spain they were at an historical high.

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  • Campa, Jose Manuel & Gavilan, Angel, 2011. "Current accounts in the euro area: An intertemporal approach," Journal of International Money and Finance, Elsevier, vol. 30(1), pages 205-228, February.
  • Handle: RePEc:eee:jimfin:v:30:y:2011:i:1:p:205-228
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    References listed on IDEAS

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    Cited by:

    1. Milan Nedeljkovic & Gonzalo Varela & Michele Savini Zangrandi, 2015. "Indonesia Current Account Assessment," World Bank Other Operational Studies 22340, The World Bank.
    2. Davis, J. Scott & Mack, Adrienne & Phoa, Wesley & Vandenabeele, Anne, 2016. "Credit booms, banking crises, and the current account," Journal of International Money and Finance, Elsevier, vol. 60(C), pages 360-377.
    3. Benedicta Marzinotto, 2016. "Income Inequality and Macroeconomic Imbalances under EMU," LEQS – LSE 'Europe in Question' Discussion Paper Series 110, European Institute, LSE.
    4. Karl Farmer, 2013. "Financial Integration and EMU's External Imbalances in a Two-Country OLG Model," Graz Economics Papers 2013-07, University of Graz, Department of Economics.
    5. Luigi Bonatti & Andrea Fracasso, 2012. "A Germans� dilemma: save the euro or preserve their socio-economic model," Department of Economics Working Papers 1207, Department of Economics, University of Trento, Italia.
    6. Hope, David, 2016. "Estimating the effect of the EMU on current account balances: A synthetic control approach," European Journal of Political Economy, Elsevier, vol. 44(C), pages 20-40.
    7. Wong Hock Tsen, 2014. "External Balance And Budget In Malaysia," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 10(2), pages 37-54.
    8. Karl Farmer, 2013. "EMU Imbalances in a Two-Country Overlapping Generations Model," EcoMod2013 5484, EcoMod.
    9. Carlos A. Carrasco & Felipe Serrano, 2014. "Global and European Imbalances:A critical review," Working papers wpaper42, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    10. Luigi Bonatti & Andrea Fracasso, 2013. "The German Model and the European Crisis," Journal of Common Market Studies, Wiley Blackwell, vol. 51(6), pages 1023-1039, November.
    11. Unger, Robert, 2017. "Asymmetric credit growth and current account imbalances in the euro area," Journal of International Money and Finance, Elsevier, vol. 73(PB), pages 435-451.
    12. Michał Brzozowski & Sadananda Prusty, 2013. "Impact of GDP volatility on current account balances," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 5(3), pages 239-252.
    13. repec:ege:journl:v:18:y:2018:i:1:p:121-134 is not listed on IDEAS
    14. Carlos A. Carrasco, 2015. "A note on European external imbalances and the euro adoption," Economics Bulletin, AccessEcon, vol. 35(4), pages 2104-2109.
    15. Carlos Alberto Carrasco, 2016. "Causality between external balance and (some) fiscal variables: Preliminary results for the Eurozone," Economics and Business Letters, Oviedo University Press, vol. 5(3), pages 80-86.
    16. Oscar Bajo-Rubio & Vicente Esteve, 2017. "Optimality of the current account of the Spanish economy, 1850-2015," Working Papers 1710, Department of Applied Economics II, Universidad de Valencia.

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