Is There a Non-Zero Stable Component in the Eurozone’s External Balances?

Carlos Carrasco

Journal of Economic Integration, 2018, vol. 33, issue 4, 787-817

Abstract: We consider the potential presence of a structural component in the external balance of 12 Eurozone countries. To this aim, we define the Structural Component of the External Balance as the unobservable part of the external balance that is stable or evolves slowly and around which fluctuations occur with a potentially cyclical origin that are corrected in the shortterm. We propose a methodology for obtaining the Structural Component of the External Balance by decomposing the external balance using breakpoint tests, and we contrast this methodology against other methods widely used in the economic literature. Moreover, we investigate the factors that determine the Structural Component of the External Balance of Eurozone countries. According to our results, Belgium, Germany, Luxembourg, and the Netherlands have a structural and persistent surplus, whereas Greece, Portugal, and Spain have structural deficits. Furthermore, our results indicate that export specialization, financial openness, and a government deficit/surplus are the key variables explaining the Structural Component of the External Balance.

Keywords: European external imbalances; Structural external balance; Economic specialization; Financial liberalization; Economic integration (search for similar items in EconPapers)
JEL-codes: F15 F32 F36 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0759

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