Modeling Financial Integration, Intra-EMU and Asian-US External Imbalances

Karl Farmer and Irina Ban ()
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Irina Ban: Babes-Bolyai-University Cluj-Napoca

International Advances in Economic Research, 2017, vol. 23, issue 3, No 1, 281 pages

Abstract: Abstract Intra-EMU external imbalances in the pre-crisis period up to 2008 are traditionally explained by EMU-oriented factors, e.g. euro-related financial integration. Chen et al. (2013) also emphasize external trade shocks, such as the competitive challenge of emerging Asia and oil exporters to EMU-periphery’s exports. Moreover, Asian-U.S. external imbalances are attributed to financial integration between East Asia and the USA in the aftermath of the East-Asian currency crises in the late 1990s (Angeletos and Panoussi 2011). Acknowledging these empirical facts this paper develops a Buiter (1981) three-country (EMU, Asia, US), two-region (EMU core, EMU periphery) OLG model to investigate the effects of both intra-EMU and Asian-U.S. financial integration on intra-EMU, Asian and U.S. external imbalances. We find that the widening of the intra-EMU external imbalances, in particular of trade imbalances, is related to the growth in Asian-U.S. imbalances and the dynamic inefficiency of the world economy, caused by excessive saving in Asia.

Keywords: External imbalances; European economic and monetary union; Overlapping generations; Three-country model (search for similar items in EconPapers)
JEL-codes: F34 F36 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s11294-017-9638-8

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