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Current accounts in the euro area: An intertemporal approach

  • Campa, Jose M.

    ()

    (IESE Business School)

  • Gavilán, Angel

    (Banco de España)

This paper uses an intertemporal model of the current account to evaluate the fluctuations in current account balances experienced by Euro area countries over the last three decades. In the model current account balances are used to smooth consumption and they are driven by expectations about future income and relative prices. This simple model is not rejected for six (Belgium, France, Italy, Netherlands, Portugal, and Spain) of the ten Euro area countries examined, although the model tends to underestimate their current account volatility. The analysis also shows that the relative contributions to current account balances of future output and relative prices differ across countries. Expectations of future growth increased in all Southern European countries at the creation of the Euro but they had considerably diverged by 2005. While in Portugal these expectations are now below its historical mean, in Spain they are at a historical high.

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Paper provided by IESE Business School in its series IESE Research Papers with number D/651.

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Length: 40 pages
Date of creation: 06 Sep 2006
Date of revision:
Handle: RePEc:ebg:iesewp:d-0651
Contact details of provider: Postal: IESE Business School, Av Pearson 21, 08034 Barcelona, SPAIN
Web page: http://www.iese.edu/

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