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Title:On the brink? Intra-euro area imbalances and the sustainability of foreign debt PDF Logo
Authors:Körner, Finn Marten
Zemanek, Holger
Issue Date:2012
Series/Report no.:Working Paper, Universität Leipzig, Wirtschaftswissenschaftliche Fakultät 109
Abstract:In this paper we study the intra-euro area imbalances based on a dynamic general equilibrium model. We show that European financial integration and the introduction of the euro might have contributed to the development of imbalances. Interest rate convergence following EMU accession led to net foreign debt positions, which prove difficult to reverse. Simulation results for the euro area suggest that current account imbalances and foreign debt positions of today's crisis countries have significantly diverged from a sustainable path. Increasing investment in the EMU core and productivity in crisis countries may permit a return to sustainable foreign debt levels and correct macroeconomic imbalances in the euro area.
Subjects:current account imbalances
euro area
foreign debt
sustainability
general equilibrium model
JEL:E44
F32
F34
G15
Document Type:Working Paper
Appears in Collections:Working Papers, Universität Leipzig

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