Reverse Causality in Global and Intra‐European Imbalances

Abstract

The paper discusses global current account imbalances in the context of an asymmetric world monetary system. It identifies the USA and Germany as center countries with rising/high current account deficits (USA) and surpluses (Germany). These are matched by current account surpluses of countries stabilizing their exchange rates against the dollar (dollar periphery) and current account deficits of countries stabilizing their exchange rates against the euro or members of the euro area (euro periphery). The paper finds that changes of world current account positions are closely linked to the monetary policy decision patterns both in the centers and peripheries. Whereas in the centers current account positions are affected by monetary policies, in the peripheries exchange rate stabilization cum sterilization matters. In specific, monetary expansion in the USA as well as exchange rate stabilization and sterilization policies in the dollar periphery are found to have contributed to global imbalances.

Trade imbalances within the euro area and with respect to the rest of the world

“…For the intra balances, it is just the opposite. This result is interesting and in line with both Schnabl and Freitag's (2012) and Chen et al's (2013) observations concerning the direction of net capital flows inside the "euro bloc". In addition, bureaucracy quality has a positive effect on intra balances: if the index increases by one standard deviation, a country tends to have a 1% (of GDP) larger (smaller) intra surplus (deficit).…”

“…(Belke and Dreger 2013.) Schnabl and Freitag (2012) remind us that a large number of developing countries have pegged their currencies more or less to the US dollar. By contrast, a large number of European countries have pegged their currencies to the euro.…”

Revisiting the Factors behind European External Imbalances

“…UNIONS bargaining power will affect price competitiveness by trying to set a rate of wage growth higher than the rate of productivity growth (negative sign). However, the evolution of the relationship between productivity and wages in Germany after reunification gives an indication of unions' behaviour as potential wage moderators when their bargaining power decreased, per Schnabl and Freitag (2012). If this is true, a positive sign for the UNIONS variable can be expected.…”

The Roles of Saving, Investment and the Renminbi in Rebalancing the Chinese Economy

“…Key to reconciling this puzzling concurrence of strong consumption, robust investment and large current surpluses is the saving of income windfalls from four favorable productivity and demand shocks over the past two decades (1990–2011). While three of these are strictly domestic, the fourth, China's accession to the World Trade Organization (WTO), drew force from the housing boom in the USA and elsewhere, which was enabled by easy global liquidity (Schnabl and Freitag, ; Committee on the Global Financial System, ).…”