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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 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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File URL: http://economix.fr/pdf/dt/2014/WP_EcoX_2014-05.pdf
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Paper provided by University of Paris West - Nanterre la Défense, EconomiX in its series EconomiX Working Papers with number 2014-5.

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Length: 23 pages
Date of creation: 2014
Date of revision:
Handle: RePEc:drm:wpaper:2014-5
Contact details of provider: Postal: 200 Avenue de la République, Bât. G - 92001 Nanterre Cedex
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