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Modeling financial integration, intra-EMU and Asian-US external imbalances

Author

Listed:
  • Karl Farmer

    (University of Graz)

  • Irina Ban

    (Babes-Bolyai-University Cluj-Napoca)

Abstract

Intra-EMU external imbalances in the pre-crisis period up to 2008 are traditionally explained by EMU-oriented factors, e.g. euro-related financial integration. Chen et al. (2013) also emphasize external trade shocks, such as the competitive challenge of emerging Asia and oil exporters to EMU-periphery's exports. Moreover, Asian-US external imbalances are attributed to financial integration between East Asia and the USA in the aftermath of the East-Asian currency crises in the late 1990s (Angeletos et al. 2011). Acknowledging these empirical facts this paper develops a Buiter (1981) three-country (EMU, Asia, US), two-region (EMU core, EMU periphery) OLG model to investigate the effects of both intra-EMU and Asian-US financial integration on intra- EMU, Asian and US external imbalances. We find that the widening of the intra-EMU external imbalances, in particular of trade imbalances, is related to the growth in Asian-US imbalances and the dynamic inefficiency of the world economy, caused by excessive saving in Asia.

Suggested Citation

  • Karl Farmer & Irina Ban, 2014. "Modeling financial integration, intra-EMU and Asian-US external imbalances," Graz Economics Papers 2014-06, University of Graz, Department of Economics.
    • Handle: RePEc:grz:wpaper:2014-06
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    References listed on IDEAS

    as
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    Cited by:

    1. Karl Farmer & Irina Ban, 2017. "Modeling Financial Integration, Intra-EMU and Asian-US External Imbalances," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 23(3), pages 261-281, August.
    2. Karl Farmer & Bogdan Mihaiescu, 2016. "Credit constraints and differential growth in equilibrium modeling of EMU and global trade imbalances," Graz Economics Papers 2016-05, University of Graz, Department of Economics.
    3. Karl Farmer & Bogdan Mihaiescu, 2015. "Pension systems and financial constraints in a three-country OLG model of intra-EMU and global trade imbalances," Graz Economics Papers 2015-08, University of Graz, Department of Economics.
    4. Karl Farmer, 2016. "The Intertemporal Equilibrium Modeling of Intra-EMU and Global Trade Imbalances," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 22(4), pages 377-395, November.

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    More about this item

    Keywords

    External Imbalances; European Economic and Monetary Union; Overlapping Generations; Three-Country Model;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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