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Euro area imbalances: How much could an expansion in the North help the South?

Oliver Picek and Enno Schröder

No 180-2017, IMK Working Paper from IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute

Abstract: We run simulations of current account rebalancing scenarios in the Euro Area and the European Union based on a closed multi-country input-output model. The spillover effects of domestic demand booms in the Northern European surplus countries are non-negligible, but not large. While they cannot on their own create a meaningful upswing in the former Southern European deficit countries, they could be an important element thereof. In particular, a Northern expansion can create the necessary policy space for a domestic demand-driven expansion in the European South by relaxing the balance of payments constraint. Then, a coordinated asymmetric expansion in the Euro Area could alleviate the unemployment crisis in the European South.

Keywords: Current Account Imbalances; Current Account Rebalancing; Euro Crisis; Euro Zone; Domestic Demand Expansion; European Union (search for similar items in EconPapers)
JEL-codes: F15 F32 F45 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2017
New Economics Papers: this item is included in nep-acc and nep-eec
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