Are the current account imbalances between EMU countries sustainable?

Christian Schoder, Christian Proaño and Willi Semmler

No 90-2012, IMK Working Paper from IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute

Abstract: Using parametric and non-parametric estimation techniques, we analyze the sustainability of the recently growing current account imbalances in the euro area and test whether the European Monetary Union has aggravated these imbalances. Two alternative criteria for the as-sessment of external debt sustainability are considered: One based on the Transversality Condition of intertemporal optimization, and the other based on the stationarity properties of the stochastic process of the debt-GDP ratio. Econometric sustainability tests are performed using the pooled mean-group estimator and panel unit root tests, respectively. Variants of both test procedures with varying coefficients using penalized splines estimation are applied. We find empirical evidence suggesting that the introduction of the euro is associated with a regime shift from sustainability to unsustainability of external debt accumulation for the euro area.

Pages: 28 pages
Date: 2012
New Economics Papers: this item is included in nep-cba, nep-eec and nep-opm
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:imk:wpaper:90-2012

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