External debt and real exchange rates’ adjustment in the euro area: New evidence from a nonlinear NATREX model

Cécile Couharde (), Serge Rey and Audrey Allegret ()
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Audrey Allegret: EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique

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Abstract: In this paper we revisit medium- to long-run real exchange rate determination within the euro area, focusing on the role of external debt. Accordingly, we rely on the NATREX approach which provides an explicit framework of the external debt-real exchange rates nexus. In particular, given the indebtedness levels reached by the euro area economies, we investigate potential non-linearity in real exchange rates dynamics, according to the level of the external debt. Our results evidence that during the monetary union, gross and net external debt positions of the euro area countries have exerted pressures on real exchange rate dynamics within the area. Moreover, we find that, beyond a threshold reached by the external debt, euro area countries are found to be in a vulnerable position, leading to an unavoidable adjustment process. Nevertheless, the adjustment process, while effective, is found to be low and occurs slowly.

Keywords: Euro area; External debt; NATREX approach; Panel Smooth Transition Regression models; Real exchange rates. (search for similar items in EconPapers)
Date: 2015
Note: View the original document on HAL open archive server: https://hal.science/hal-04141404
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Related works:
Journal Article: External debt and real exchange rates’ adjustment in the euro area: new evidence from a nonlinear NATREX model (2016)
Working Paper: External debt and real exchange rates' adjustment in the euro area: new evidence from a nonlinear NATREX model (2016)
Working Paper: External debt and real exchange rates' adjustment in the euro area: New evidence from a nonlinear NATREX model (2016)
Working Paper: External debt and real exchange rates’adjustment in the euro area: New evidence from a nonlinear NATREX model (2015)
Working Paper: External debt and real exchange rates’ adjustment in the euro area: New evidence from a non linear NATREX model (2015)
Working Paper: External debt and real exchange rates’ adjustment in the euro area: New evidence from a non linear NATREX model (2015)
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