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Is the European debt crisis a mere balance of payments crisis?

  • David Guerreiro

This paper is interested in linking formally external disequilibriums to the sovereign debt crisis the EMU is experiencing since 2009. Relying on the CHEER approach that connects the goods market to the capital market, we show that when a country belonging to a monetary union faces external disequilibrium relative to its main partner, the corresponding interest rate differential increases. Moreover, when these imbalances are persistent, it may trigger a balance of payments crisis. Our findings indicate that this phenomenon seems to be at play for the European countries under international assistance.

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Paper provided by FIW in its series FIW Working Paper series with number 118.

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Length: 20
Date of creation: Apr 2013
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Handle: RePEc:wsr:wpaper:y:2013:i:118
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