Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/88441
Authors: 
Herrmann, Sabine
Jochem, Axel
Year of Publication: 
2013
Series/Report no.: 
Discussion Paper, Deutsche Bundesbank 49/2013
Abstract: 
The paper evaluates current account dynamics in countries with different exchange rate regimes within the EU. In this, the empirical analysis explicitly differentiates between countries with a flexible and a fixed exchange rate regime and members of a monetary union. In addition, we model the adjustment process of external disequilibria by referring to the flexibility of exchange rates and interest rates. The sample covers annual data for 27 EU countries from 1994 to 2011. The estimation is based on a simple autoregressive model and comes to the conclusion that current account adjustment is significantly hampered in countries that are members of a monetary union. This holds particularly in comparison with floating exchange rate regimes owing to lower exchange rate flexibility. However, the persistence of current account balances in member countries of a monetary union is also more pronounced than in fixed-rate regimes due to less flexible interest rates as a result of the single monetary policy.
Subjects: 
Balance of Payments
European Monetary Union
Exchange Rate Regime
Current Account Adjustment
Financial Crisis
JEL: 
E52
F32
F33
F34
ISBN: 
978-3-86558-987-3
Document Type: 
Working Paper

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