Current account balances’ divergence in the euro area: an appraisal of the underlying forces

Valérie Mignon (), Carl Grekou and Emmanuelle Faure

No 2023-3, EconomiX Working Papers from University of Paris Nanterre, EconomiX

Abstract: This paper revisits the crucial issue of current account imbalances and focuses on the determinants of their gaps between eurozone Member States. We conduct robust estimations of the current account balances for a panel of ten founding euro area economies and construct a measure that allows us to diagnose why some countries have started to diverge from the eurozone mean in the last two decades. Our findings show evidence of remaining differences in countries’ economic development, meaning that real macroeconomic convergence has failed in the zone. Price and cost competitiveness, as well as fiscal balances, have also participated in this growing macroeconomic divergence. Overall, while the European authorities cannot influence the part of the current account gaps due to demographic factors, the role of fiscal redistribution and investment at the euro area level could help achieve macroeconomic convergence and thus reduce current accounts’ divergence in the zone.

Keywords: Current account; global imbalances; eurozone (search for similar items in EconPapers)
JEL-codes: C33 F32 O52 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2023
New Economics Papers: this item is included in nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:drm:wpaper:2023-3

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