External imbalances in the eurozone

Trade effects of the euro: evidence from sectoral data

Ruo Chen, Gian Maria Milesi-Ferretti () and Thierry Tressel

Economic Policy, 2013, vol. 28, issue 73, 101-142

Abstract: The paper examines the extent to which current account imbalances of euro area countries are related to intra-euro area factors and to external trade shocks. We argue that the traditional explanations for the rising imbalances are correct, but are incomplete. We uncover a large impact of declines in export competitiveness and asymmetric trade developments vis-à-vis the rest of the world \x96 in particular vis-à-vis China, Central and Eastern Europe, and oil exporters \x96 on the external balance of euro area debtor countries. While current account imbalances of euro area deficit countries vis-à-vis the rest of the world increased, they were financed mostly by intra-euro area capital inflows (in particular by the purchase of government and financial institutions' securities, and cross-border interbank lending) which permitted external imbalances to grow over time.— Ruo Chen, Gian Maria Milesi-Ferretti and Thierry Tressel

Date: 2013
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Citations: View citations in EconPapers (98)

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Persistent link: https://EconPapers.repec.org/RePEc:oup:ecpoli:v:28:y:2013:i:73:p:101-142.

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