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Title:Current account imbalances in the euro area: Catching up or competitiveness? PDF Logo
Authors:Belke, Ansgar
Dreger, Christian
Issue Date:2011
Series/Report no.:Discussion paper // European University Viadrina, Department of Business Administration and Economics 297
Abstract:In the debate on global imbalances, the euro area countries did not receive much attention so far. While the current account is on balance for the entire area, divergences between individual member states have increased since the introduction of the common currency. In this paper, the imbalances are traced to catching up and competitiveness factors using paneleconometric techniques. In line with the intertemporal approach to the current account, low income countries tend to run deficits, while rich countries realize surpluses. However, the effect diminishes, if early years are dropped from the sample. The competitiveness channel is more robust and shows the expected sign, i.e. a real appreciation leads to external deficits. To restore competitiveness, a reduction of unit labour costs is on the agenda. Since a deterioration of competitiveness is not a feasible strategy for the surplus countries, an asymmetric response across countries is required in order to reduce the imbalances.
Subjects:current account imbalances
catching up and competitiveness
euro area
JEL:E44
F34
F36
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des DIW
Diskussionspapiere, Wirtschaftswissenschaftliche Fakultät, Europa-Universität Viadrina

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