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Quantifying and Correcting Eurozone Imbalances Fighting the Debt Snowball

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  • Vistesen, Claus

Abstract

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.

Suggested Citation

  • Vistesen, Claus, 2010. "Quantifying and Correcting Eurozone Imbalances Fighting the Debt Snowball," MPRA Paper 22943, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:22943
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    File URL: https://mpra.ub.uni-muenchen.de/22943/1/MPRA_paper_22943.pdf
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    References listed on IDEAS

    as
    1. Holger Zemanek & Ansgar Belke & Gunther Schnabl, 2009. "Current Account Imbalances and Structural Adjustment in the Euro Area: How to Rebalance Competitiveness," Discussion Papers of DIW Berlin 895, DIW Berlin, German Institute for Economic Research.
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    4. Jean Pisani-Ferry & Alan Ahearne, 2006. "The Euro- only for the agile," Bruegel Policy Brief 42, Bruegel.
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    8. von Hagen, Jurgen & Schmitz, Birgit, 2009. "Current Account Imbalances and Financial Integration in the Euro Area," CEPR Discussion Papers 7262, C.E.P.R. Discussion Papers.
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    Keywords

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    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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