External imbalances and recoveries
Mariam Camarero (),
María Dolores Gadea-Rivas,
Ana Gómez-Loscos () and
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María Dolores Gadea-Rivas: University of Zaragoza
No 2012, Working Papers from Banco de España, Working Papers Homepage
A decade after the beginning of the Great Recession, flow external imbalances, measured by the current account (CA) have narrowed markedly. However, stock or net foreign assets (NFA) imbalances have kept increasing and have created challenges for future macroeconomic and financial stability. To date, early warning systems (scoreboards) have focused more on flow than on the stock variables. To approach this problem, in this paper we analyze expansions using two complementary sets of indicators proposed by Harding and Pagan (2002) and Gadea et al. (2017). After controlling for a large set of explanatory variables, we find that the effect of CA imbalances is limited, except when the measures selected take into account past CA developments or some degree of persistence. In contrast, the evolution of NFA seems to be much more explanatory of the time it takes to regain the level of output previous to the recession, as well as the amplitude and the cumulation of the recoveries. Therefore, we conclude that future macro-prudential policies should pay more attention to stock variables to measure external imbalances due to their effects on the characteristics of recoveries.
Keywords: business cycles; recoveries; NFA; external imbalances; current account (search for similar items in EconPapers)
JEL-codes: F21 R12 C23 (search for similar items in EconPapers)
Pages: 55 pages
New Economics Papers: this item is included in nep-eec and nep-mac
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Working Paper: External imbalances and recoveries (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2012
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