External deficits in the Baltics 1995 to 2007: Catching up or imbalances

Julia Lendvai and Werner Roeger

No 398, European Economy - Economic Papers 2008 - 2015 from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: This paper studies external deficits in the Baltics between 1995 and 2007.It uses a calibrated small-open-economy dynamic general equilibrium model incorporating a financial accelerator to assess to what extent deficits can be explained by productivity growth, fall in spreads and increasing access to credit.Results suggest that the external deficit and other key macroeconomic aggregates can be well fitted by the equilibrium response of the model economy. Real convergence is found to have been dominant in the first half of the sample. More reversible financial factors became increasingly important towards the end of the period pointing to growing vulnerability. Positive growth outlook is also likely to have played a significant role in the build up of the foreign debt. Reversal scenarios confirm the need for a sizable readjustment.

Keywords: Baltic; States; financial; accelerator; dynamic; general; equilibrium; Roeger; Lendvai; External; Deficits; in; the; Baltics; 1995; to; 2007; Catching; Up; or; Imbalances (search for similar items in EconPapers)
JEL-codes: C68 F41 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2010-01
New Economics Papers: this item is included in nep-dge, nep-eec and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:euf:ecopap:0398

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