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External imbalances from a GVAR perspective

Mariam Camarero (), Josep Carrion-i-Silvestre () and Cecilio Tamarit

No 2005, Working Papers from Department of Applied Economics II, Universidad de Valencia

Abstract: In this paper we study the drivers governing external disequilibria through a Global VAR (GVAR) analysis applied to a group of 24 countries during the period 1972-2017. The GVAR methodology is particularly well suited for our research question. First, it permits to measure the effects of both, domestic and foreign country-specific shocks. Second, it allows to analyze not only the long-run relationships, but also the dynamics through generalized impulse-response functions. Third, it enables to test many hypotheses from a macroeconomic perspective and the existence of spillovers. Our results show evidence of international financial integration in terms of the fulfillment of the real interest rate parity. Concerning the Twin Deficit hypothesis, we find no linkages between domestic current account and fiscal fiscal defficit. In addition, we show how German fiscal policy has relevant spillover effects on other European countries (such as France, Spain and the Netherlands) as well as on the US and India. Finally, the global shocks have long-lasting effects in most of the countries analyzed, especially through the real oil prices. These results provide some clues about how to implement a more symmetrical external adjustment, especially inside the euro area.

Keywords: Current account; net foreign assets; twin deficit; panel data; Global VAR (search for similar items in EconPapers)
JEL-codes: C23 F32 F41 (search for similar items in EconPapers)
Date: 2020-09
New Economics Papers: this item is included in nep-eec, nep-mac and nep-opm
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