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Factor Income and the Euro Area Current Account

Author

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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.
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    5. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
    6. Galstyan, Vahagn, 2019. "Understanding the Euro Area Current Account," Economic Letters 7/EL/19, Central Bank of Ireland.
    7. Aart Kraay & Jaume Ventura, 2000. "Current Accounts in Debtor and Creditor Countries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(4), pages 1137-1166.
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    Cited by:

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

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