Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/148033 
Authors: 
Year of Publication: 
2016
Series/Report no.: 
FIW Working Paper No. 166
Publisher: 
FIW - Research Centre International Economics, Vienna
Abstract: 
The euro area crisis is often linked to the emergence of current account imbalances. As most of the deficit countries experienced pronounced credit booms at the same time that these imbalances were building up, this paper investigates the link between domestic credit developments and the current account balance. Using a panel error correction specification, the estimation results show that flows of bank loans to the non-financial private sector are a significant determinant of the current account and that they - together with changes in competitiveness - constituted the most important factor driving the build-up of current account imbalances in the deficit countries. Accordingly, impeding an increase in private sector indebtedness seems to be a promising way to dampen the formation of unsustainable current account imbalances.
Subjects: 
banks
credit growth
current account imbalances
euro area
JEL: 
E50
F32
F45
G21
Document Type: 
Working Paper

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