Current accounts in the euro area: An intertemporal approach

Jose Campa and Angel Gavilán
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Angel Gavilán: Banco de España

No D/651, IESE Research Papers from IESE Business School

Abstract: This paper uses an intertemporal model of the current account to evaluate the fluctuations in current account balances experienced by Euro area countries over the last three decades. In the model current account balances are used to smooth consumption and they are driven by expectations about future income and relative prices. This simple model is not rejected for six (Belgium, France, Italy, Netherlands, Portugal, and Spain) of the ten Euro area countries examined, although the model tends to underestimate their current account volatility. The analysis also shows that the relative contributions to current account balances of future output and relative prices differ across countries. Expectations of future growth increased in all Southern European countries at the creation of the Euro but they had considerably diverged by 2005. While in Portugal these expectations are now below its historical mean, in Spain they are at a historical high.

Keywords: Current account; euro; external deficits; economic integration (search for similar items in EconPapers)
Pages: 40 pages
Date: 2006-09-06
New Economics Papers: this item is included in nep-cba and nep-eec
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Current accounts in the euro area: An intertemporal approach (2011)
Journal Article: Current accounts in the euro area: an intertemporal approach (2007)
Working Paper: Current accounts in the euro area: An intertemporal approach (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:iesewp:d-0651

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