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Quantifying and Correcting Eurozone Imbalances Fighting the Debt Snowball

  • Vistesen, Claus

This paper quantifies and discusses the concept of current account imbalances in the Eurozone. Using panel data estimations, the analysis shows how the external positions of the Eurozone economies can be modelled as a function of divergences in unit labour costs. Specifically, the results indicate that the formation of EMU has exacerbated the extent to which even relatively small divergences in unit labour costs may materialize in large current account imbalances. These results are framed in the context of the idea of a debt snowball effect and why the idea of an internal devaluation as a tool to correct external imbalances is inconsistent with the current setup of the Eurozone.

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File URL: https://mpra.ub.uni-muenchen.de/22943/1/MPRA_paper_22943.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 22943.

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Date of creation: 28 May 2010
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Handle: RePEc:pra:mprapa:22943
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  1. Christoph Knoppik & Thomas Beissinger, 2009. "Downward nominal wage rigidity in Europe: an analysis of European micro data from the ECHP 1994–2001," Empirical Economics, Springer, vol. 36(2), pages 321-338, May.
  2. Alan Ahearne & Jean Pisani-Ferry, 2006. "The Euro: only for the agile," Policy Briefs 42, Bruegel.
  3. Zemanek, Holger & Belke, Ansgar & Schnabl, Gunther, 2009. "Current Account Imbalances and Structural Adjustment in the Euro Area: How to Rebalance Competitiveness," IZA Policy Papers 7, Institute for the Study of Labor (IZA).
  4. Paul J. Devereux & Joseph G. Altonji, 2000. "The extent and consequences of downward nominal wage rigidity," Open Access publications 10197/311, School of Economics, University College Dublin.
  5. Holden, Steinar & Wulfsberg, Fredrik, 2005. "Downward Nominal Wage Rigidity in the OECD," Memorandum 10/2005, Oslo University, Department of Economics.
  6. Lars Calmfors, 2003. "Fiscal Policy to Stabilise the Domestic Economy in the EMU: What Can We Learn from Monetary Policy?," CESifo Economic Studies, CESifo, vol. 49(3), pages 319-353.
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