What Drives the German Current Account? And How Does it Affect Other EU Member States

Kollmann, Robert; Ratto, Marco; Roeger, Werner; Veld, Jan in’t; Vogel, Lukas

doi:10.24149/gwp176

Cited by 29 publications

(27 citation statements)

References 4 publications

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“…The decomposition in Figure echoes the results in Kollmann et al (). In particular, positive shocks to private savings, leading to lower domestic and import demand, account for the largest part of the continuous DE TBY increase in recent years.…”

Section: The Estimated Modelsupporting

confidence: 86%

“…GM is a structural dynamic macroeconomic (DSGE) model and is described in detail in Albonico et al (). The model builds on Kollmann et al () and is similar to the one in Kollmann, Ratto, Roeger, in't Veld, and Vogel (), who review competing hypotheses about the drivers of the DE surplus and assess their quantitative importance. The model includes a large number of variables and shocks and observables for estimation to exploit a large amount of time‐series information.…”

Section: Introductionmentioning

confidence: 99%

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The euro exchange rate and Germany's trade surplus

Hohberger

Ratto

Vogel

2019

International Finance

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In the context of debates about the euro exchange rate's (EXR) impact on Germany's (DE) trade surplus, we estimate a multiregion macroeconomic model (1999–2018) and provide a counterfactual in which we simulate the shocks of the estimated model in an alternative setting with freely floating nominal EXRs. The results suggest a reduction of the DE trade surplus by up to 1.3% of gross domestic product (GDP; around 1/4 of the surplus) during 2010–2015 compared to the data, together with a stronger real effective EXR (REER). The rest of the euro area (REA) net exports are more negative (by up to −0.6% of GDP) in the counterfactual before the EA crisis, but more positive (by up to 0.4% of GDP) in recent years. Overall, the counterfactual DE and REA trade balance and REER trajectories are very similar to the actual paths. Modifying shock processes in the counterfactual would give rise to larger differences.

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Section: The Estimated Modelsupporting

confidence: 86%

Section: Introductionmentioning

confidence: 99%

The euro exchange rate and Germany's trade surplus

Hohberger

Ratto

Vogel

2019

International Finance

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“…The approach deals with the current and capital account behavior simultaneously, in that it examines the international movements of capital (direct and portfolio investment flows) along with the trade in goods and services. It derives the consumption and saving decisions of the forward-looking agents from the maximization of the subjective utility function, subject to the intertemporal budget constraint (Obstfeld, 1981(Obstfeld, , 1982(Obstfeld, , 1983(Obstfeld, , 1986Sachs, 1981Sachs, , 1982Sheffrin & Woo, 1990;Otto, 1992;Ghosh, 1995;Glick & Rogoff, 1995;Obstfeld & Rogoff, 1996;Taylor, 2002;Rubaszek, 2012;Kollmann, Ratto, Roeger, in't Veld, & Vogel, 2015). The CAD is sustainable and the IBC is valid when the present value of foreign debt outstanding at the end of time t is equal to the sum of the present values of all future net trade surpluses, or net output measured as aggregate output minus consumption, investment and government spending.…”

Section: Consumption Saving and Investment: The Intertemporal Appmentioning

confidence: 99%

“…The 1990s witnessed the development of dynamic stochastic general equilibrium (DSGE) models, which account for uncertainty confronting the optimizing agents with regard to the changes in relevant variables. Studies using DSGE models relax the assumptions of perfect foresight and certainty; they examine the extent to which the agents can insure and safeguard themselves against unpredictable contingencies such as fluctuations in output arising from random shocks (Glick & Rogoff, 1995;Obstfeld & Rogoff, 1995a, 1995b, 1996Ferrero, Gertler, & Svensson, 2008;Herz & Hohberger, 2013;Kollmann et al, 2015).…”

Section: Consumption Saving and Investment: The Intertemporal Appmentioning

confidence: 99%

Intertemporal sustainability of current account imbalances: New evidence from the OECD countries

Singh

2019

Economic Notes

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This study estimates the intertemporal model for the relationship between exports and imports and examines the sustainability of current account deficits (CADs) and the validity of intertemporal budget constraint for 24 Organisation for Economic Co‐operation and Development countries. The standard ordinary least squares (OLS)‐based two‐step Engle and Granger test, the cointegration regression Durbin–Watson (CRDW) test, and the Stock–Watson test performed on the one‐regime model with time‐invariant parameters and no structural break provide mixed support for the presence of cointegration between exports and imports. The recursive least squares‐based cumulative sum of recursive residuals (CUSUM) and the cumulative sum of squares of recursive residuals (CUSUMSQ) tests and the OLS‐based Andrews‐Quandt (AQ) and Andrews – Ploberger (AP) tests suggest the presence of structural breaks in the long‐run relationship between exports and imports for a number of countries. The end‐of‐sample new cointegration breakdown tests performed on the OLS, fully modified OLS, and full‐information maximum‐likelihood estimates of the model suggest the presence of cointegration between exports and imports for most countries. The dominant support for cointegration between trade flows points toward the sustainability of CADs and the validity of intertemporal budget constraint. The macroeconomic stabilization policies seem to have been effective in correcting the market failures and maintaining the steady‐state equilibrium relationship between trade flows in the sample countries. The findings of this study have important implications for empirical research. The structural breaks in the cointegrating vector could occur even over the short time periods and at any point in time. It is essentially important to assess the sustainability of the external position in the presence of long‐period as well as short‐period breaks in the cointegrating vector.

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“…The analysis shows that an internal devaluation process between the adjusting countries and Germany may originate from a number of distinct shocks that have different repercussions at the country and sectoral levels. The policy debate has often concentrated on whether the adjustment process in a monetary union should take place via higher demand in the surplus countries (Elekdag and Muir , Kollmann et al ) or slower wage growth in the countries with external imbalances (Vogel ). The model allows us to investigate both.…”

Section: Introductionmentioning

confidence: 99%

External and Macroeconomic Adjustment in the Larger Euro‐Area Countries

Angelini

Zorzi²,

Aerssen³

2016

International Finance

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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. The paper is released in order to make the research of CompNet generally available, in preliminary form, to encourage comments and suggestions prior to final publication. The views expressed in the paper are the ones of the author(s) and do not necessarily reflect those of the ECB, the ESCB, and of other organisations associated with the Network. Terms of use: Documents in EconStor may AcknowledgementsWe are grateful for the insightful comments by L. Dedola, A. Dieppe, G. Kenny, G. Lombardo, M. Rubaszek, F. Smets as well as participants of ECB and ESCB seminars. The views expressed are those of the authors and do not necessarily reflect those of the ECB. Elena AngeliniEuropean Central Bank; e-mail: elena.angelini@ecb.europa.euMichele Ca' Zorzi European Central Bank; e-mail: michele.cazorzi@ecb.europa.eu Katrin ForsterEuropean Central Bank; e-mail: katrin.forster@ecb.europa.eu AbstractA balanced current account in the euro area has disguised sizeable net lending imbalances at the country level, exposing the common currency area to severe pressures during the …nancial crisis.The key contribution of this paper is to evaluate the adjustment process through the lenses of the New Multi Country Model at the country and sectoral level. We …nd that shocks to the external, …scal and monetary environment help explain, to a large degree, the sizable current account adjustment and rise in unemployment in Spain. The model also suggests that a recovery in wage competitiveness helps to reduce external de…cits at the cost of higher net borrowing by households. The stimulus e¤ects on aggregate demand, via the interest rate response of the common monetary authority and the competitiveness channel, are present but not overly large, as the rebound in economic activity depends mainly on global demand, supportive monetary policy, business and consumer con…dence.Key words: net lending, euro area countries, current account, modeling JEL Classi…cation: C5, F32, F41, O52. NON-TECHNICAL SUMMARYThe current account in the euro area has historically been close to balance. The presence of de…cits and surpluses across the di¤erent participating members was not generally perceived as a major policy issue, as e.g. the Spanish de…cit was o¤set by the German surplus (Williamson, 2007).The sizable net borrowing by the euro area public sector was instead o¤set by the net savings of the euro area private sector. Following the …nancial crisis the academic literature has moved from a largely beni...

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What Drives the German Current Account? And How Does it Affect Other EU Member States

Cited by 29 publications

References 4 publications

The euro exchange rate and Germany's trade surplus

The euro exchange rate and Germany's trade surplus

Intertemporal sustainability of current account imbalances: New evidence from the OECD countries

External and Macroeconomic Adjustment in the Larger Euro‐Area Countries

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