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Current Account Imbalances in Europe

  • Philip R. Lane

    ()

    (Institute for International Integration Studies, Trinity College Dublin)

  • Barbara Pels

    ()

    (Union Bank of Switzerland)

The European crisis is partly attributable to the sharp increase in external imbal- ances across Europe during the pre-crisis period. We examine current account imbal- ances in Europe over 1995-2007, together with the underlying saving and investment rates (and their subcomponents). We O?nd that the discrete expansion in current ac- count imbalances during the 2002-2007 period can be attributed to a strengthening in the link between growth forecasts and current account balances. A striking pattern was that greater optimism about future growth was associated with lower savings and higher construction investment, rather than investment in productive capital.

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Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp397.

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Length: 36 pages
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:iis:dispap:iiisdp397
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  1. Philip R. Lane & Gian Maria Milesi Ferretti, 2011. "External Adjustment and the Global Crisis," NBER Working Papers 17352, National Bureau of Economic Research, Inc.
  2. Campa, Jose M. & Gavilán, Angel, 2006. "Current accounts in the euro area: An intertemporal approach," IESE Research Papers D/651, IESE Business School.
  3. Michele Ca' Zorzi & Michał Rubaszek, 2012. "On the Empirical Evidence of the Intertemporal Current Account Model for the Euro Area Countries," Review of Development Economics, Wiley Blackwell, vol. 16(1), pages 95-106, 02.
  4. Jörg Decressin & Emil Stavrev, 2009. "Current Accounts in a Currency Union," IMF Working Papers 09/127, International Monetary Fund.
  5. Philip R. Lane, 2008. "The Macroeconomics of Financial Integration: A European Perspective," The Institute for International Integration Studies Discussion Paper Series iiisdp265, IIIS.
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