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Modeling Financial Integration, Intra-EMU and Asian-US External Imbalances

Author

Listed:
  • Karl Farmer

    (University of Graz)

  • Irina Ban

    (Babes-Bolyai-University Cluj-Napoca)

Abstract

Intra-EMU external imbalances in the pre-crisis period up to 2008 are traditionally explained by EMU-oriented factors, e.g. euro-related financial integration. Chen et al. (2013) also emphasize external trade shocks, such as the competitive challenge of emerging Asia and oil exporters to EMU-periphery’s exports. Moreover, Asian-U.S. external imbalances are attributed to financial integration between East Asia and the USA in the aftermath of the East-Asian currency crises in the late 1990s (Angeletos and Panoussi 2011). Acknowledging these empirical facts this paper develops a Buiter (1981) three-country (EMU, Asia, US), two-region (EMU core, EMU periphery) OLG model to investigate the effects of both intra-EMU and Asian-U.S. financial integration on intra-EMU, Asian and U.S. external imbalances. We find that the widening of the intra-EMU external imbalances, in particular of trade imbalances, is related to the growth in Asian-U.S. imbalances and the dynamic inefficiency of the world economy, caused by excessive saving in Asia.

Suggested Citation

  • Karl Farmer & Irina Ban, 2017. "Modeling Financial Integration, Intra-EMU and Asian-US External Imbalances," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 23(3), pages 261-281, August.
    • Handle: RePEc:kap:iaecre:v:23:y:2017:i:3:d:10.1007_s11294-017-9638-8
    DOI: 10.1007/s11294-017-9638-8
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    References listed on IDEAS

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    More about this item

    Keywords

    External imbalances; European economic and monetary union; Overlapping generations; Three-country model;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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