External imbalances in a monetary union. Does the Lawson doctrine apply to Europe?

Mariam Camarero, Josep Carrion-i-Silvestre and Cecilio Tamarit

No 10-09, Working Papers from Asociación Española de Economía y Finanzas Internacionales

Abstract: A monetary union raises new economic questions about the interpretation and the implications of high current account de?cits for the economic performance of its members in the medium term. Recent literature has argued that conventional measures of external sustainability are misleading because they omit capital variations on net foreign asset positions. In this paper we analyze external sustainability making use of the database developed by Lane and Milesi-Ferretti (2007a) that incudes these valuation effects. The sample period studied covers from the launching of the monetary integration process in Europe (the creation of the ?European Snake? in 1972) up to 2007. The econometric methodology used accounts for the increasing cross-section dependence among EMU countries as well as possible structural breaks endogenously determined. The results point to the need of abrupt adjustments, either led by the markets or promoted by pro-active policy measures in order to offset external disequilibria. The lack of these timely interventions together with the rigidities and institutional imperfections of the present EMU are on the ground of the excessive cost in terms of growth and employment of the current crisis.

Keywords: Current account imbalances; EMU; panel stationarity; structural breaks; cross-section dependence. (search for similar items in EconPapers)
JEL-codes: C23 F32 F41 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2010-02
New Economics Papers: this item is included in nep-eec, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: External imbalances in a monetary union. Does the Lawson doctrine apply to Europe? (2010)
Working Paper: External Imbalances in a Monetary Union. Does the Lawson Doctrine Apply to Europe? (2010)
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