On the Brink? Intra‐euro Area Imbalances and the Sustainability of Foreign Debt

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractIn this paper we study the intra-euro area imbalances based on a dynamic general equilibrium model. We show that European financial integration and the introduction of the euro might have contributed to the development of imbalances. Interest rate convergence following EMU accession led to net foreign debt positions, which prove difficult to reverse. Simulation results for the euro area suggest that current account imbalances and foreign debt positions of today's crisis countries have significantly diverged from a sustainable path. Increasing investment in the EMU core and productivity in crisis countries may permit a return to sustainable foreign debt levels and correct macroeconomic imbalances in the euro area.

Drivers of European Transition Countries’ External Current Accounts: An LSDVC Approach

“…From a geographical perspective, the academic literature on current account deficits has been primarily concerned with the sizable and persistent external imbalances of the United States (e.g., Chakraborty and Dekle 2009;Duncan 2015;Ivanova 2010;Kim and Roubini 2008;Mussa 2007;Sooreea and Wheeler 2010) and of the euro area (e.g., Blanchard and Giavazzi 2002;Brissimis et al 2013;Campa and Gavilan 2011;Ca'Zorzi and Rubaszek 2012;Chen, Milesi-Ferretti, and Tressel 2013;Di Mauro and Pappada 2014;Hobza and Zeugner 2014;Körner and Zemanek 2013;Lane and Milesi-Ferretti 2007). Due to their minuscule geopolitical importance, very little academic attention has been devoted to the European transition countries (e.g., Aristovnik 2006Aristovnik , 2008Bussière, Fratzscher, and Müller 2006).…”

Real Effective Exchange Rate Misalignment in the Euro Area: A Counterfactual Analysis

“…For a further analysis of the current misalignment within the Euro area, see e.g. Belke and Dreger () and Körner and Zemanek ().…”