Current Account Imbalances: A New Approach to Assess External Debt Sustainability

Semmler, Willi; Tahri, Ibrahim

doi:10.2139/ssrn.2666131

Cited by 1 publication

(1 citation statement)

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“…The Eurozone crisis has explicated how external imbalances may cause destructive effects on an economy, either via accumulated differences in productivity (Camarero et al, 2013;Sinn, 2015) or due to sudden changes in the international environment (Lane and Pels, 2012;Obstfeld, 2012;Atoyan et al, 2013). The crisis has naturally focused much of policy and academic attention on the 'Eurozone south' (see, interalia, Arghyrou et al, 2008;Zemanek et al, 2010;Belke and Drager, 2013;Semmler and Tahri, 2017). The issue, however, is arguably much more pertinent in the case of emerging and transition economies -such as those located in the 'European periphery ' and 'super-periphery' (Bartlett and Prica, 2013).…”

Section: Introductionmentioning

confidence: 99%

The Sustainability of External Imbalances in the European Periphery

Monastiriotis

Tunalı

2019

Open Econ Rev

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The issue of external imbalances has become a key concern in the global economy, gaining particular prominence also inside Europe, following the Eurozone crisis. Comparatively, however, evidence for the European periphery is much less developed. In this study we investigate the sustainability of external imbalances in 15 countries from the EU's so-called eastern and super-periphery across a range of sustainability tests. We find that external imbalances are on the whole large and, despite some significant adjustments in the post-crisis period, they continue to follow paths that are possibly unsustainable. Our results show a higher likelihood of confirming sustainability when looking separately at the current account and the net foreign asset position than when looking jointly at the current and capital accounts (and thus at the intertemporal budget constraint -Bohn, 2007). This suggests, albeit tentatively, problems and vulnerabilities that go beyond simple concerns about price competitiveness and the trade performance of the countries under study.

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