External Imbalances in the Euro Area

By Ruo Chen, G. Milesi-Ferretti, T. Tressel. Social Science Research Network, 2012

202 citations recorded by the source corpus.

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-a-vis the rest of the world –in particular vis-a-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-a-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.

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Citations in the corpus

• Economic causes of the Eurozone crisis: the analytical contribution of Comparative Capitalism (2016, background): “Generally, except for the case of Greece, private debt is at least as important as public debt for the current misery of the Southern Eurozone countries (Chen et al., 2012, pp. 20–21; De Grauwe, 2013, pp. 11–16; Regan, 2015, pp. 13–14).”
• The Euro and the Geography of International Debt Flows (2014, background): “2Trade imbalances of euro area members and their financing are discussed by Chen et al. (2013), who draw on the bilateral international investment position data documented in Waysand et al. (2010).”
• Crisis and recovery in the German economy: The real lessons (2015, unknown): “…et al. (2011)a 1980–2009 −0.14 Breuer and Klose (2013)a 1995Q1–2012Q4 Insignificant −0.21 Bussière et al. (2011)a; for 18 OECD countries 1985Q1–2010Q2 0.04 Chen et al. (2012)a; for 11 Eurozone countries 1990–2009 0.09 −0.09 Danninger and Joutz (2007)a 1993–2005 −0.10 ECB NMCM model (Dieppe et…”
• Can Structural Reforms Help Europe (2013, unknown): “A popular narrative for the poor performance of the European periphery is that this reflects the accumulation of “macroeconomic imbalances” since the introduction of the common currency (see, among others, Eichengreen, 2010; Chen et al., 2012).”
• Financial Globalisation and the Crisis (2012, unknown): “…source of the covariation between growth projections and the current account during 2003–2007 was an increase in construction investment in the deficit countries, which was a danger signal in terms of repayment capacity (see also Blanchard 2007; Giavazzi and Spaventa 2011; Chen et al. 2012).”