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Current Account Imbalances in Europe

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  • Lane, Philip R.
  • Pels, Barbara

Abstract

The European crisis is partly attributable to the sharp increase in external imbalances across Europe during the pre-crisis period. We examine current account imbalances in Europe over 1995-2007, together with the underlying saving and investment rates (and their subcomponents). We find that the discrete expansion in current account imbalances during the 2002-2007 period can be attributed to a strengthening in the link between growth forecasts and current account balances. A striking pattern was that greater optimism about future growth was associated with lower savings and higher construction investment, rather than investment in productive capital.

Suggested Citation

  • Lane, Philip R. & Pels, Barbara, 2012. "Current Account Imbalances in Europe," CEPR Discussion Papers 8958, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:8958
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    References listed on IDEAS

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    1. Campa, Jose M. & Gavilán, Angel, 2006. "Current accounts in the euro area: An intertemporal approach," IESE Research Papers D/651, IESE Business School.
    2. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2012. "External adjustment and the global crisis," Journal of International Economics, Elsevier, vol. 88(2), pages 252-265.
    3. Olivier Blanchard & Francesco Giavazzi, 2002. "Current Account Deficits in the Euro Area: The End of the Feldstein Horioka Puzzle?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2), pages 147-210.
    4. Philip R. Lane, 2008. "The Macroeconomics of Financial Integration: A European Perspective," The Institute for International Integration Studies Discussion Paper Series iiisdp265, IIIS.
    5. Michele Ca' Zorzi & Michał Rubaszek, 2012. "On the Empirical Evidence of the Intertemporal Current Account Model for the Euro Area Countries," Review of Development Economics, Wiley Blackwell, vol. 16(1), pages 95-106, February.
    6. Mr. Emil Stavrev & Mr. Jörg Decressin, 2009. "Current Accounts in a Currency Union," IMF Working Papers 2009/127, International Monetary Fund.
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    More about this item

    Keywords

    current account; EMU; Europe;
    All these keywords.

    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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