We are grateful to John Kowalski for outstanding assistance. We thank Helge Berger, Olivier Blanchard, Gianluca Benigno, Fernando Broner, Stijn Claessens, James Daniel, Luc Everaert, Linda Goldberg, Florence Jaumotte, Marcel Fratzscher, Refet Gürkaynak, Maury Obstfeld, two anonymous referees, and participants at the IMF Research Department Brown-bag seminar, the 2011 CEPR Workshop on Global Interdependence, seminar participants at the Banque de France and at the Economic Policy Panel meeting in Copenhagen in April 2012 for their comments. The views expressed in this paper are the authors and do not necessarily reflect those of the IMF or IMF policy.
External imbalances in the eurozone
Article first published online: 11 FEB 2013
© CEPR, CES, MSH, 2013
Volume 28, Issue 73, pages 101–142, January 2013
How to Cite
Chen, R., Milesi-Ferretti, G. M. and Tressel, T. (2013), External imbalances in the eurozone. Economic Policy, 28: 101–142. doi: 10.1111/1468-0327.12004
The Managing Editor in charge of this paper was Refet S. Gürkaynak.
- Issue published online: 11 FEB 2013
- Article first published online: 11 FEB 2013
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 \x96 in particular vis-à-vis China, Central and Eastern Europe, and oil exporters \x96 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.
— Ruo Chen, Gian Maria Milesi-Ferretti and Thierry Tressel