IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

External imbalances in a monetary union. Does the Lawson doctrine apply to Europe?

Listed author(s):
  • Mariam Camarero

    (Jaume I University)

  • Josep Lluís Carrion-i-Silvestre

    (University of Barcelona)

  • Cecilio Tamarit

    (University of Valencia)

A monetary union raises new economic questions about the interpretation and the implications of high current account de?cits for the economic performance of its members in the medium term. Recent literature has argued that conventional measures of external sustainability are misleading because they omit capital variations on net foreign asset positions. In this paper we analyze external sustainability making use of the database developed by Lane and Milesi-Ferretti (2007a) that incudes these valuation effects. The sample period studied covers from the launching of the monetary integration process in Europe (the creation of the ?European Snake? in 1972) up to 2007. The econometric methodology used accounts for the increasing cross-section dependence among EMU countries as well as possible structural breaks endogenously determined. The results point to the need of abrupt adjustments, either led by the markets or promoted by pro-active policy measures in order to offset external disequilibria. The lack of these timely interventions together with the rigidities and institutional imperfections of the present EMU are on the ground of the excessive cost in terms of growth and employment of the current crisis.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.aeefi.com/RePEc/pdf/defi10-09.pdf
Download Restriction: no

Paper provided by Asociación Española de Economía y Finanzas Internacionales in its series Working Papers with number 10-09.

as
in new window

Length: 34 pages
Date of creation: Feb 2010
Handle: RePEc:aee:wpaper:1009
Contact details of provider: Web page: http://www.aeefi.com

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window

  1. Sheffrin, S.M. & Woo, W.T., 1989. "Present Value Tests Of An Intertemporal Model Of The Current Account," Papers 61, California Davis - Institute of Governmental Affairs.
  2. Philip R. Lane & Gian M Milesi-Ferretti, 2002. "External Wealth, the Trade Balance, and the Real Exchange Rate," IMF Working Papers 02/51, .
  3. Fagan, Gabriel & Gaspar, Vítor, 2007. "Adjusting to the euro," Working Paper Series 0716, European Central Bank.
  4. James M. Nason and John H. Rogers, 2001. "The Present Value Model of the Current Account Has Been Rejected: Round Up the Usual Subjects," Computing in Economics and Finance 2001 102, Society for Computational Economics.
  5. M. Hashem Pesaran & L. Vanessa Smith & Takashi Yamagata, 2008. "Panel Unit Root Tests in the Presence of a Multifactor Error Structure," CESifo Working Paper Series 2193, CESifo Group Munich.
  6. Chortareas Georgios E & Kapetanios George & Uctum Merih, 2004. "An Investigation of Current Account Solvency in Latin America Using Non Linear Nonstationarity Tests," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 8(1), pages 1-19, March.
  7. Corsetti, Giancarlo & Roubini, Nouriel, 1991. "Fiscal deficits, public debt, and government solvency: Evidence from OECD countries," Journal of the Japanese and International Economies, Elsevier, vol. 5(4), pages 354-380, December.
  8. Steven M. Sheffrin & Paul Bergin, 2003. "Interest Rates, Exchange Rates And Present Value Models Of The Current Account," Working Papers 9722, University of California, Davis, Department of Economics.
  9. Alan M. Taylor, 2002. "A Century of Current Account Dynamics," NBER Working Papers 8927, National Bureau of Economic Research, Inc.
  10. Gruber, Joseph W., 2004. "A present value test of habits and the current account," Journal of Monetary Economics, Elsevier, vol. 51(7), pages 1495-1507, October.
  11. Caroline Freund & Frank Warnock, 2007. "Current Account Deficits in Industrial Countries: The Bigger They Are, The Harder They Fall?," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 133-168 National Bureau of Economic Research, Inc.
  12. Kraay, Aart & Loayza, Norman & Servén, Luis & Ventura, Jaume, 2001. "Country Portfolios," CEPR Discussion Papers 2974, C.E.P.R. Discussion Papers.
  13. Ricardo J. Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2006. "An Equilibrium Model of Global Imbalances and Low Interest Rates," 2006 Meeting Papers 894, Society for Economic Dynamics.
  14. Jaewoo Lee & Jonathan David Ostry & Alessandro Prati & Luca A Ricci & Gian M Milesi-Ferretti, 2008. "Exchange Rate Assessments; CGER Methodologies," IMF Occasional Papers 261, International Monetary Fund.
  15. Jushan Bai; Josep Lluís Carrion-i-Silvestre, 2004. "Structural changes, common stochastic trends and unit roots in panel data," Econometric Society 2004 North American Summer Meetings 345, Econometric Society.
  16. Wu, Jyh-Lin, 2000. "Mean reversion of the current account: evidence from the panel data unit-root test," Economics Letters, Elsevier, vol. 66(2), pages 215-222, February.
  17. Anna Pavlova & Roberto Rigobon, 2007. "An Asset-Pricing View of External Adjustment," NBER Working Papers 13468, National Bureau of Economic Research, Inc.
  18. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
  19. Michele Cavallo & Cedric Tille, 2006. "Could capital gains smooth a current account rebalancing?," Staff Reports 237, Federal Reserve Bank of New York.
  20. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
  21. Sarno, Lucio & Taylor, Mark P, 1997. "The Behaviour of Real Exchange Rates During the Post-Bretton Woods Period," CEPR Discussion Papers 1730, C.E.P.R. Discussion Papers.
  22. Richard H. Clarida, 2007. "Introduction to "G7 Current Account Imbalances: Sustainability and Adjustment"," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 1-10 National Bureau of Economic Research, Inc.
  23. Philip Schellekens & Rudolfs Bems, 2007. "Finance and Convergence; What’s Ahead for Emerging Europe?," IMF Working Papers 07/244, .
  24. Hamid Faruqee & Guy Debelle, 1996. "What Determines the Current Account? a Cross-Sectional and Panel Approach," IMF Working Papers 96/58, .
  25. Eric Zivot & Donald W.K. Andrews, 1990. "Further Evidence on the Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Cowles Foundation Discussion Papers 944, Cowles Foundation for Research in Economics, Yale University.
  26. Husted, Steven, 1992. "The Emerging U.S. Current Account Deficit in the 1980s: A Cointegration Analysis," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 159-166, February.
  27. Jeffrey D. Sachs, 1981. "The Current Account and macroeconomic Adjustment in the 1970s," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 201-282.
  28. Gabriele Galati & Guy Debelle, 2005. "Current account adjustment and capital flows," BIS Working Papers 169, Bank for International Settlements.
  29. Richard H. Clarida, 2007. "G7 Current Account Imbalances: Sustainability and Adjustment," NBER Books, National Bureau of Economic Research, Inc, number clar06-2.
  30. John Y. Campbell, 1986. "Does Saving Anticipate Declining Labor Income? An Alternative Test of the Permanent Income Hypothesis," NBER Working Papers 1805, National Bureau of Economic Research, Inc.
  31. Menzie David Chinn & Eswar S Prasad, 2000. "Medium-Term Determinants of Current Accounts in Industrial and Developing Countries; An Empirical Exploration," IMF Working Papers 00/46, .
  32. Mark J. Holmes, 2006. "How Sustainable Are Oecd Current Account Balances In The Long Run?," Manchester School, University of Manchester, vol. 74(5), pages 626-643, 09.
  33. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
  34. Georgios Chortareas & George Kapetanios & Merih Uctum, 2003. "An Investigation of Current Account Solvency in Latin America Using Non Linear Stationarity Tests," Working Papers 485, Queen Mary University of London, School of Economics and Finance.
  35. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
  36. Olivier Blanchard, 2007. "Adjustment within the euro. The difficult case of Portugal," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 6(1), pages 1-21, April.
  37. Sebastian Edwards, 2001. "Does the Current Account Matter?," NBER Working Papers 8275, National Bureau of Economic Research, Inc.
  38. Wu, Jyh-Lin & Chen, Show-Lin & Lee, Hsiu-Yun, 2001. "Are current account deficits sustainable?: Evidence from panel cointegration," Economics Letters, Elsevier, vol. 72(2), pages 219-224, August.
  39. Otto, Glenn, 1992. "Testing a present-value model of the current account: Evidence from US and Canadian time series," Journal of International Money and Finance, Elsevier, vol. 11(5), pages 414-430, October.
  40. Ahmed, Shaghil, 1986. "Temporary and permanent government spending in an open economy: Some evidence for the United Kingdom," Journal of Monetary Economics, Elsevier, vol. 17(2), pages 197-224, March.
  41. Banerjee, Anindya, 1999. " Panel Data Unit Roots and Cointegration: An Overview," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 607-629, Special I.
  42. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
  43. Leo de Haan & Hubert Schokker & Anastassia Tcherneva, 2006. "What do current account reversals in OECD countries tell us about the US case?," DNB Working Papers 111, Netherlands Central Bank, Research Department.
  44. Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers 979, Cowles Foundation for Research in Economics, Yale University.
  45. Ghosh, Atish R, 1995. "International Capital Mobility amongst the Major Industrialised Countries: Too Little or Too Much?," Economic Journal, Royal Economic Society, vol. 105(428), pages 107-128, January.
  46. Bussière, Matthieu & Fratzscher, Marcel & Müller, Gernot J., 2004. "Current accounts dynamics in OECD and EU acceding countries - an intertemporal approach," Working Paper Series 0311, European Central Bank.
  47. Michael A. Kouparitsas, 2005. "Is the U.S. current account sustainable?," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue Jun.
  48. Cedric Tille, 2003. "The impact of exchange rate movements on U.S. foreign debt," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 9(Jan).
  49. Olivier Blanchard & Francesco Giavazzi, 2002. "Current Account Deficits in the Euro Area: The End of the Feldstein Horioka Puzzle?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2), pages 147-210.
  50. Gian Maria Milesi-Ferrett & Assaf Razin, 1996. "Sustainability of Persistent Current Account Deficits," NBER Working Papers 5467, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:aee:wpaper:1009. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jose L. Torres)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.