External Imbalances in the Euro Area
Gian Maria Milesi-Ferretti () and
Thierry Tressel ()
No 12/236, IMF Working Papers from International Monetary Fund
The paper examines the extent to which current account imbalances of euro area countries are related to intra-euro area factors and to external trade shocks. We argue that the traditional explanations for the rising imbalances are correct, but are incomplete. We uncover a large impact of declines in export competitiveness and asymmetric trade developments vis-à-vis the rest of the world –in particular vis-à-vis China, Central and Eastern Europe, and oil exporters- on the external balance of euro area debtor countries. While current account imbalances of euro area deficit countries vis-à-vis the rest of the world increased, they were financed mostly by intra-euro area capital inflows (in particular by the purchase of government and financial institutions’ securities, and cross-border interbank lending) which permitted external imbalances to grow over time.
Keywords: Europe; euro area, external imbalances, financial integration, terms of trade shocks, trading partner, trading partners, trade shocks, commodity exporters, domestic demand, Institutions and the Macroeconomy, Country and Industry Studies of Trade, General, Open Economy Macroeconomics, Economic Growth of Open Economies, (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:12/236
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