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Factor Income and the Euro Area Current Account

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  • Galstyan, Vahagn

    (Central Bank of Ireland)

Abstract

The increase in the current account surplus of the euro area has been accompanied by muted growth in real wages and an increase in corporate profits. I show that these developments are linked. In particular, temporary shifts in labor income covary negatively with the current account, while permanent shifts show little correlation. On the other hand, temporary shifts in capital income covary positively with the euro area current account, while permanent shifts are marginally negatively correlated. With recent income dynamics likely being temporary in nature, the findings suggest that both external and internal imbalances could unwind simultaneously, were the upward pressure in the labor market to translate into a redistribution of corporate profits towards labor income.

Suggested Citation

  • Galstyan, Vahagn, 2019. "Factor Income and the Euro Area Current Account," Economic Letters 8/EL/19, Central Bank of Ireland.
  • Handle: RePEc:cbi:ecolet:8/el/19
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    References listed on IDEAS

    as
    1. Galstyan, Vahagn, 2019. "Inflation and the Current Account in the Euro Area," Economic Letters 4/EL/19, Central Bank of Ireland.
    2. Allen, Cían, 2019. "Revisiting external imbalances: Insights from sectoral accounts," Journal of International Money and Finance, Elsevier, vol. 96(C), pages 67-101.
    3. Chen, Peter & Karabarbounis, Loukas & Neiman, Brent, 2017. "The global rise of corporate saving," Journal of Monetary Economics, Elsevier, vol. 89(C), pages 1-19.
    4. Mai Chi Dao & Chiara Maggi, 2018. "The Rise in Corporate Saving and Cash Holding in Advanced Economies: Aggregate and Firm Level Trends," IMF Working Papers 2018/262, International Monetary Fund.
    5. Aart Kraay & Jaume Ventura, 2000. "Current Accounts in Debtor and Creditor Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 115(4), pages 1137-1166.
    6. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
    7. Galstyan, Vahagn, 2019. "Understanding the Euro Area Current Account," Economic Letters 7/EL/19, Central Bank of Ireland.
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    Cited by:

    1. Galstyan, Vahagn, 2019. "Inflation and the Current Account in the Euro Area," Economic Letters 4/EL/19, Central Bank of Ireland.
    2. Galstyan, Vahagn, 2019. "Understanding the Euro Area Current Account," Economic Letters 7/EL/19, Central Bank of Ireland.

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