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On the origin of current account deficits in the Euro area periphery: A DSGE perspective

Christoph Zwick ()
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Christoph Zwick: University of Graz, Austria

No 2018-02, Graz Economics Papers from University of Graz, Department of Economics

Abstract: This paper studies the sources of current account deficits in Greece, Ireland, Portugal and Spain after the introduction of the Euro. I lay out a DSGE model with a rich structure of the external sector and estimate it separately on each periphery country. I show that the model exhibits a solid in-sample-fit across periphery countries and use it to quantitatively assess different explanations concerning the origin of the deficits. The focus thereby lies on the role of interest convergence in the early years of EMU as well as of the nominal appreciation of the Euro after 2001 together with the ECB's capability to prevent the build-up of the deficits and smoothen future current account adjustment processes via a nominal depreciation.

Keywords: Current account; Competitiveness; Euro area; DSGE (search for similar items in EconPapers)
JEL-codes: C32 E42 E52 F32 F41 F45 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-eec, nep-mac and nep-opm
Date: 2018-02
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