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Asymmetric Credit Growth and Current Account Imbalances in the Euro Area

Robert Unger ()

No 166, FIW Working Paper series from FIW

Abstract: The euro area crisis is often linked to the emergence of current account imbalances. As most of the deficit countries experienced pronounced credit booms at the same time that these imbalances were building up, this paper investigates the link between domestic credit developments and the current account balance. Using a panel error correction specification, the estimation results show that flows of bank loans to the non-financial private sector are a significant determinant of the current account and that they – together with changes in competitiveness – constituted the most important factor driving the build-up of current account imbalances in the deficit countries. Accordingly, impeding an increase in private sector indebtedness seems to be a promising way to dampen the formation of unsustainable current account imbalances.

Keywords: banks; credit growth; current account imbalances; euro area (search for similar items in EconPapers)
JEL-codes: E50 F32 F45 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-mac
Date: 2016-02
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Related works:
Journal Article: Asymmetric credit growth and current account imbalances in the euro area (2017) Downloads
Working Paper: Asymmetric credit growth and current account imbalances in the euro area (2015) Downloads
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