Cross-border finance, trade imbalances and competitiveness in the euro area

Hubert Gabrisch

MPRA Paper from University Library of Munich, Germany

Abstract: The nearly exclusive explanation for current account imbalances in the euro area blames real economy differences between countries, prominently the competitiveness of the participating states. This essay questions the common opinion that wage policy is crucial for rebalancing the European economies. This essay attempts to unfurl the real economy processes from the perspective of money and finance. This essay identifies an interregional asset-price-interest mechanism at work in the monetary union: A general change in the state of confidence provokes asset prices and the effective long-run interest rate to change and to affect aggregate demand and trade flows. A change in competitive positions of countries follows as the second-round effect. The policy implications prefer a downscaling of the financial sector against government interventions into wage formation.

Keywords: Financial flows; liquidity-preference; trade imbalances; competitiveness; euro area (search for similar items in EconPapers)
JEL-codes: E1 E4 F1 F3 G1 (search for similar items in EconPapers)
Date: 2015-12-15
New Economics Papers: this item is included in nep-eec, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:68518

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