External Imbalances in the Euro Area

Ruo Chen, Gian Maria Milesi-Ferretti () and Thierry Tressel

No 2012/236, IMF Working Papers from International Monetary Fund

Abstract: 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: WP; euro; area country; export; debtor country; euro area; external imbalances; financial integration; terms of trade shocks; area debtor countries; demand elasticity; terms of trade; area export; Exports; Real exchange rates; Imports; Trade balance; Demand elasticity; Asia and Pacific; Southern Europe (search for similar items in EconPapers)
Pages: 49
Date: 2012-09-28
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (111)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=40027 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2012/236

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().