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On the Empirical Evidence of the Intertemporal Current Account Model for the Euro Area Countries


  • The authors have benefited from valuable comments by anonymous referees and participants at seminars at the European Central Bank and National Bank of Poland. The views expressed in this article area those of the authors and do not necessarily represent the position of the European Central Bank and National Bank of Poland. All errors are the authors' own responsibility.

Ca' Zorzi: European Central Bank, Kaiserstrasse 29, 60311 Frankfurt, Germany. E-mail: Rubaszek (corresponding author): National Bank of Poland, Świetokrzyska Street 11/21, 00-919 Warsaw, Poland. Tel: +48-22-653-1175; Fax: +48-22-826-9935; E-mail:, and Warsaw School of Economics, Al. Niepodległości 162, 02-554 Warsaw, Poland.


A simple intertemporal current account model is found to explain successfully the current account configuration in the euro area before the Great Recession. The analysis suggests that consumption smoothing, prompted by expectations of economic convergence and the removal of exchange rate risk, has been an important driving force for the build-up of current account divergence in the euro area since the creation of monetary union. The model also predicts that current account deficits and surpluses would narrow under a post-crisis scenario of moderate catching-up and more segmented bond markets.