Fiscal Divergence and Current Account Imbalances in Europe

Gunther Schnabl and Timo Wollmershäuser

No 4108, CESifo Working Paper Series from CESifo

Abstract: Since the breakdown of the Bretton Woods System diverging current account positions in Europe have prevailed. While the Southern and Western European countries have tended to run current account deficits, the current accounts of the Central and Northern European countries, in particular Germany, have tended to be in surplus. The paper scrutinizes the role of diverging fiscal policy stances for current account imbalances in Europe since the early 1970s under alternative institutional monetary arrangements (floating exchange rates, European Monetary System, and European Monetary Union). It sheds light on the interaction of fiscal and monetary policies with respect to their impact on the current account and analyses the role of exchange rate changes and credit facilities as adjustment mechanisms for current account imbalances. Panel regressions reveal a robust impact of fiscal policy divergence on current account imbalances, which to a large extent is independent from the exchange rate regime, but which turns out to be contingent on the monetary policy stance.

Keywords: Europe; EMU; EMS; current account imbalances; exchange rate adjustment; credit mechanisms; European debt crisis (search for similar items in EconPapers)
JEL-codes: F32 F33 F42 H62 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp4108.pdf (application/pdf)

Related works:
Working Paper: Fiscal Divergence and Current Account Imbalances in Europe (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_4108

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().