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How Macroeconomic Imbalances Interact? Evidence from a Panel VAR Analysis

  • Blaise Gnimassoun
  • Valérie Mignon

This paper aims at investigating the interactions between three key macroeconomic imbalances, namely Global imbalances,current-account discrepancies (external imbalances), output gaps (internal imbalances), and exchange-rate misalignments. To this end, we rely on the estimation of a panel VAR model for a sample of 22 industrialized countries over the 1980-2011 period. Our findings show that macroeconomic imbalances strongly interact through a causal relationship. We evidence that if current-account disequilibria threaten the stability of the global economy, their origin can be found in internal imbalances and exchange-rate misalignments: positive output-gap shocks as well as currency overvaluation deepen current-account deficits. In addition, while variations in external imbalances mainly result from exchange-rate misalignments in the euro area, they are mostly explained by output gaps for non-eurozone members.

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Paper provided by CEPII research center in its series Working Papers with number 2013-42.

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Date of creation: Dec 2013
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Handle: RePEc:cii:cepidt:2013-42
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