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Euro area external adjustment and real exchange rate movements :the role of firm productivity distribution

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  • Pappadà, F.

Abstract

External imbalances in the euro area require real exchange rate adjustments. This Rue de la Banque explores the consequences of the euro area external adjustment in a framework where (i) the extensive margin (new exporting firms) contributes to aggregate trade flows, and (ii) cross-country differences in terms of firms’ productivity distribution are taken into account. Surplus countries in the euro area have larger and more productive firms than deficit countries. When deficit countries adjust their external imbalances, the magnitude of the required real exchange rate depreciation may be larger than traditional calculations might suggest.

Suggested Citation

  • Pappadà, F., 2015. "Euro area external adjustment and real exchange rate movements :the role of firm productivity distribution," Rue de la Banque, Banque de France, issue 15, December..
    • Handle: RePEc:bfr:rueban:2015:15
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    File URL: https://publications.banque-france.fr/sites/default/files/medias/documents/rue-de-la-banque_15_2015-12_en.pdf
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    References listed on IDEAS

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    1. Maurice Obstfeld & Kenneth S. Rogoff, 2005. "Global Current Account Imbalances and Exchange Rate Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(1), pages 67-146.
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    Cited by:

    1. Antoine Berthou & Matthieu Bussière & Laurent Ferrara & Sophie Haincourt & Francesco Pappadà & Julia Schmidt, 2018. "Global imbalances: build-up, unwinding and financial aspects," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 220, pages 1-12, November-.

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