Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/162689
Authors: 
Comunale, Mariarosaria
Year of Publication: 
2017
Series/Report no.: 
ECB Working Paper 2026
Abstract: 
We investigate the interactions across current account misalignments, Real Effective Exchange Rate misalignments and financial (or output) gaps within EU countries. We apply panel techniques, including a Bayesian panel VAR, to 27 EU members over the period 1994-2012. We find that, for the euro area, the reaction of current account misalignments to a shock in the Real Effective Exchange Rate misalignments is the largest and the financial gap can influence the current account misalignments more than the output gap. In non-euro area countries and euro periphery an increase in current account misalignments leads to a temporary increase in the Real Effective Exchange Rate misalignments, lowering competitiveness and thus amplifying current account fluctuations. For the core, a raise in the rate or an expansion of the financial gap may help in rebalancing the current account. In the CEE members, an increase in the Real Effective Exchange Rate misalignments may bring larger current account deficits in the medium-long run.
Subjects: 
current account
real effective exchange rate
financial gaps
panel VAR
foreign capital flows
JEL: 
F32
F31
C33
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-2748-2
Document Type: 
Working Paper

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