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On the Persistence of Trade Imbalances: Evidence from Europe

  • Nitsch, Volker
  • Berger, Helge

Does exchange rate variability affect the speed of external adjustment? We study bilateral trade balances for a sample of 18 European countries over the period from 1948 through 2008. We find that, with the introduction of the euro, trade imbalances among euro area members widened considerably, even after allowing for permanent asymmetries in trade competitiveness within pairs of countries or in the overall trade competitiveness of individual countries. Intra-euro area imbalances also seem to have become more persistent with the introduction of the euro. Greater persistence is partially linked to economic and regulatory inflexibilities, such as fiscal restrictions and labor market rigidities.

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Paper provided by Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL) in its series Darmstadt Discussion Papers in Economics with number 61306.

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Date of creation: 20 Mar 2013
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Publication status: Published in Darmstadt Discussion Papers in Economics . 217 (2013-03-20)
Handle: RePEc:dar:ddpeco:61306
Note: for complete metadata visit http://tubiblio.ulb.tu-darmstadt.de/61306/
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  1. Chinn, Menzie D. & Prasad, Eswar S., 2003. "Medium-term determinants of current accounts in industrial and developing countries: an empirical exploration," Journal of International Economics, Elsevier, vol. 59(1), pages 47-76, January.
  2. Richard H. Clarida, 2006. "G7 Current Account Imbalances: Sustainability and Adjustment," NBER Working Papers 12194, National Bureau of Economic Research, Inc.
  3. Richard H. Clarida, 2007. "Introduction to "G7 Current Account Imbalances: Sustainability and Adjustment"," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 1-10 National Bureau of Economic Research, Inc.
  4. Menzie D. Chinn & Shang-Jin Wei, 2013. "A Faith-Based Initiative Meets the Evidence: Does a Flexible Exchange Rate Regime Really Facilitate Current Account Adjustment?," The Review of Economics and Statistics, MIT Press, vol. 95(1), pages 168-184, March.
  5. Freund, Caroline, 2005. "Current account adjustment in industrial countries," Journal of International Money and Finance, Elsevier, vol. 24(8), pages 1278-1298, December.
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