Assessing the sustainability of external imbalances in the European Union

Antonio Afonso, Florence Huart (), Joao Jalles and Piotr Stanek
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Florence Huart: LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique

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Abstract: We assess the sustainability of the current account (CA) balance, net international investment position (NIIP) and net external debt (NED) in a sample of 22 EU countries using two complementary approaches. First, we employ time‐series stationarity tests of current account balance‐to‐GDP ratios as well as cointegration tests of exports and imports of goods and services. Second, we assess the level of trade balance that stabilises the NIIP and the NED. We find that there is sustainability of the CA balance in eight countries, NIIP in five countries and NED in 10 countries, whereas there is evidence of a lack of sustainability in five debtor nations and three creditor nations. Both approaches are consistent with each other given the relationship between flows and stocks, the existence of structural breaks, and valuation effects via exchange rate and interest rate changes.

Date: 2018-08-30
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Published in The World Economy, 2018, ⟨10.1111/twec.12709⟩

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Related works:
Journal Article: Assessing the sustainability of external imbalances in the European Union (2019)
Working Paper: Assessing the Sustainability of External Imbalances in the European Union (2017)
Working Paper: Assessing the Sustainability of External Imbalances in the European Union (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01914597

DOI: 10.1111/twec.12709

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