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External debt and real exchange rates' adjustment in the euro area: New evidence from a nonlinear NATREX model

Author

Listed:
  • Audrey Allegret Sallenave

    (LEAD - Laboratoire d'Économie Appliquée au Développement - UTLN - Université de Toulon)

  • Cécile Couharde

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Serge Rey

    (CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour)

Abstract

In this article, we revisit medium- to long-run real exchange rate determination within the euro area, focusing on the role of external debt. Accordingly, we rely on the NATural Real EXchange rate (NATREX) approach which provides an explicit framework of the external debt--real exchange rates nexus. In particular, given the indebtedness levels reached by the euro area economies, we investigate potential nonlinearity in real exchange rates dynamics, according to the level of the external debt. Our results evidence that during the monetary union, gross and net external debt positions of the euro area countries have exerted pressures on real exchange rate dynamics within the area. Moreover, we find that, beyond a threshold reached by the external debt, euro area countries are found to be in a vulnerable position, leading to an unavoidable adjustment process. Nevertheless, the adjustment process, while effective, is found to be low and occurs slowly.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Audrey Allegret Sallenave & Cécile Couharde & Serge Rey, 2016. "External debt and real exchange rates' adjustment in the euro area: New evidence from a nonlinear NATREX model," Post-Print hal-03572489, HAL.
    • Handle: RePEc:hal:journl:hal-03572489
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    Cited by:

    1. is not listed on IDEAS
    2. Alberto Bagnai & Christian Alexander Mongeau Ospina, 2018. "Monetary integration vs. real disintegration: single currency and productivity divergence in the euro area," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 21(4), pages 353-367, October.
    3. Taoufik Bouraoui, 2019. "External debts, current account balance and exchange rates in emerging countries," Economics Bulletin, AccessEcon, vol. 39(4), pages 2333-2342.
    4. Coudert, Virginie & Mignon, Valérie, 2016. "Reassessing the empirical relationship between the oil price and the dollar," Energy Policy, Elsevier, vol. 95(C), pages 147-157.

    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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