Current accounts and financial flows in the euro area

Alexandr Hobza and Stefan Zeugner

Journal of International Money and Finance, 2014, vol. 48, issue PB, 291-313

Abstract: We construct a new database of bilateral financial flows among euro area countries and their major world partners and explore the role of financial links in the accumulation and then adjustment of current account imbalances in the euro area. The data show that the geography of financial flows can differ quite markedly from trade flow patterns and suggest that the nexus between surpluses in the 'core' with deficits in the periphery went along financial rather than trade interlinkages. In particular, the data document the dominant role of 'core' countries in financing the euro area periphery's current account deficits before the financial crisis, both directly and through intermediating financial flows from outside of the euro area. Most of this financing took the form of debt instruments. Following the withdrawal of private financing from 'core' countries during the crisis, the ECB-mediated funding and other official flows helped the periphery to refinance its liabilities and smoothen the external adjustment.

Keywords: International financial flows; External imbalances; Current account; Euro area (search for similar items in EconPapers)
JEL-codes: F32 F34 F36 F41 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (63)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:48:y:2014:i:pb:p:291-313

DOI: 10.1016/j.jimonfin.2014.05.019

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