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Is There any Rebalancing in the Euro Area?

Author

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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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    1. Virginie Coudert & Cécile Couharde & Valérie Mignon, 2013. "On Currency Misalignments within the Euro Area," Review of International Economics, Wiley Blackwell, vol. 21(1), pages 35-48, February.
    2. William R. Cline & John Williamson, 2011. "The Current Currency Situation," Policy Briefs PB11-18, Peterson Institute for International Economics.
    3. Didier Borowski & Cecile Couharde, 1999. "Quelle parite d'equilibre pour l'euro ?," Economie Internationale, CEPII research center, issue 77, pages 21-44.
    4. Susana Garcia Cervero & J. Humberto Lopez & Enrique Alberola Ila & Angel J. Ubide, 1999. "Global Equilibrium Exchange Rates; Euro, Dollar, “Ins,” “Outs,” and Other Major Currencies in a Panel Cointegration Framework," IMF Working Papers 99/175, International Monetary Fund.
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    Cited by:

    1. Couharde, Cécile & Delatte, Anne-Laure & Grekou, Carl & Mignon, Valérie & Morvillier, Florian, 2018. "EQCHANGE: A world database on actual and equilibrium effective exchange rates," International Economics, Elsevier, vol. 156(C), pages 206-230.
    2. Serranito, Francisco, 2015. "Dévaluation interne, politiques structurelles et réductions des déficits publics : les réponses apportées par la « troïka » sont-elles un remède aux déséquilibres externes des pays périphériques de la," Revue de la Régulation - Capitalisme, institutions, pouvoirs, Association Recherche et Régulation, vol. 18.

    More about this item

    Keywords

    Exchange Rates; Current Account Adjustment; Euro Area;

    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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