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Is There any Rebalancing in the Euro Area?

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  • Benjamin Carton
  • Karine Hervé

Abstract

We assess the evolution of real exchange rate misalignments within the euro area from a Fundamental Equilibrium Exchange Rate (FEER) approach. We test the robustness of the results by comparing three different estimations of the output gap. Whatever the output gap assumption, Southern countries were massively overvalued before the euro area crisis. However, the magnitude of the adjustment since is sensitive to the output gap. In particular, Greece has not registered any improvement considering an output gap that captures the financial cycle (10-15 years) instead of the business cycle (5 years). Spain and Portugal have significantly reduced their misalignment but against France and Italy instead of Germany. As a consequence, imbalances in the euro area have not reduced.

Suggested Citation

  • Benjamin Carton & Karine Hervé, 2013. "Is There any Rebalancing in the Euro Area?," Working Papers 2013-32, CEPII research center.
    • Handle: RePEc:cii:cepidt:2013-32
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    References listed on IDEAS

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    Cited by:

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    2. Peter Spahn, 2013. "Competitiveness, Adjustment and Macroeconomic Risk Management in the Eurozone," ROME Working Papers 201316, ROME Network.
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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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