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The Euro Area Periphery and Imbalances: Is it an Anticipation Story?

Daniele Siena ()

Review of Economic Dynamics, 2021, vol. 40, 278-308

Abstract: This paper investigates the sources of the current account (CA) imbalances experienced within the euro area periphery (Greece, Ireland, Portugal and Spain) before the Great Recession by assessing the role played by anticipated shocks. Since 1996, before the actual introduction of the euro, widening of CA deficits occurred in countries with appreciating real exchange rates and output growing faster than trend. To understand the causes of these patterns, I develop and estimate a small open economy DSGE model encompassing plausible drivers of CA imbalances. Anticipated spread convergence, and not catching-up, caused euro area periphery imbalances. Quantitatively, anticipated shocks are important drivers of CA and real exchange rate fluctuations. (Copyright: Elsevier)

Keywords: Current account; Real exchange rate; Anticipated shocks (search for similar items in EconPapers)
JEL-codes: E32 F32 F41 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.red.2020.09.006

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