Current Account Imbalances and Financial Integration in the Euro Area

Juergen von Hagen and Birgit Schmitz

No 7262, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: While the current account of euro area as a whole has remained almost balanced in the past two decades, several member countries have sizeable deficits or surpluses. In this paper, we interpret these imbalances as indicators of net capital flows among the euro-area countries and show that these net flows follow differences in per-capita incomes. Our results show that the elasticity with respect to per-capita incomes of net capital flows between euro-area countries and the euro area has increased. This is not the case for net capital flows between non-euro area countries and the euro area, nor for euro-area countries and the rest of the world. We interpret this as evidence for increasing financial integration in the euro area. There is also some evidence suggesting that the introduction of the euro has lead to some financial diversion.

Keywords: Current account imbalances; European monetary union; Financial integration (search for similar items in EconPapers)
JEL-codes: F21 F33 F34 F36 (search for similar items in EconPapers)
Date: 2009-04
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac, nep-mon and nep-opm
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Citations: View citations in EconPapers (40)

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