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External debt and real exchange rates’ adjustment in the euro area: New evidence from a non linear NATREX model

Author

Listed:
  • Cécile Couharde

    (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)

  • Audrey Allegret-Sallenave

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

Abstract

In this paper 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 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 non-linearity 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.

Suggested Citation

  • Cécile Couharde & Serge Rey & Audrey Allegret-Sallenave, 2015. "External debt and real exchange rates’ adjustment in the euro area: New evidence from a non linear NATREX model," Working Papers hal-01880331, HAL.
  • Handle: RePEc:hal:wpaper:hal-01880331
    Note: View the original document on HAL open archive server: https://hal-univ-pau.archives-ouvertes.fr/hal-01880331
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    Cited by:

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    2. Taoufik Bouraoui, 2019. "External debts, current account balance and exchange rates in emerging countries," Economics Bulletin, AccessEcon, vol. 39(4), pages 2333-2342.
    3. 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.

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    More about this item

    Keywords

    Euro area; External debt; NATREX approach; Panel Smooth Transition Regression models; Real exchanges rates;
    All these keywords.

    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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