Trade imbalances within the euro area and with respect to the rest of the world
Nieminen, M. (2015). Trade imbalances within the euro area and with respect to the rest of the world. Economic Modelling, 48, 306-314. doi:10.1016/j.econmod.2014.10.012
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Economic ModellingAuthors
Date
2015Copyright
© 2014 Elsevier B.V. This is a final draft version of an article whose final and definitive form has been published by Elsevier. Published in this repository with the kind permission of the publisher.
Many studies have explored the determinants of current account balances in Europe.
However, only in a few studies trade balance has been decomposed into intra balance,
trade balance vis-à-vis the euro area, and extra balance, trade balance vis-à-vis
the rest of the world. This decomposition is necessary for us to understand why
some core euro area countries are acting as financial intermediaries for the periphery
countries. Furthermore, the determinants of intra and extra balances might be different
because nominal exchange rate cannot adjust between the EMU countries while
their financial markets are highly integrated. Thus, we apply this decomposition and
supplement the previous studies by including a larger set of theoretically plausible
explanatory variables, which is derived from the current account literature. Our contribution
is twofold: We observe that, contrary to Schmitz and von Hagen (2011), the
introduction of common currency has not increased the elasticity of net capital flows
to per capita incomes within the euro area for the member countries. On the other
hand, there is a great heterogeneity among the usual determinants of trade balances
whether those contribute to intra balances or extra balances. These results increase
our understanding of the imbalances in the euro area.
...


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