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On the origin of current account deficits in the Euro area periphery: A DSGE perspective

Author

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  • Christoph Zwick

    (University of Graz, Austria)

Abstract

This paper studies the sources of current account deficits in Greece, Ireland, Portugal and Spain after the introduction of the Euro. I lay out a DSGE model with a rich structure of the external sector and estimate it separately on each periphery country. I show that the model exhibits a solid in-sample-fit across periphery countries and use it to quantitatively assess different explanations concerning the origin of the deficits. The focus thereby lies on the role of interest convergence in the early years of EMU as well as of the nominal appreciation of the Euro after 2001 together with the ECB's capability to prevent the build-up of the deficits and smoothen future current account adjustment processes via a nominal depreciation.

Suggested Citation

  • Christoph Zwick, 2018. "On the origin of current account deficits in the Euro area periphery: A DSGE perspective," Graz Economics Papers 2018-02, University of Graz, Department of Economics.
    • Handle: RePEc:grz:wpaper:2018-02
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    References listed on IDEAS

    as
    1. repec:grz:wpaper:2015-05 is not listed on IDEAS
    2. Evangelos V. Dioikitopoulos & Stephen J. Turnovsky & Ronald Wendner, 2020. "Dynamic Status Effects, Savings, And Income Inequality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(1), pages 351-382, February.
    3. repec:grz:wpaper:2016-10 is not listed on IDEAS
    4. Florian Brugger, 2017. "The Effect of Foreign and Domestic Demand on U.S. Treasury Yields," Graz Economics Papers 2017-02, University of Graz, Department of Economics.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Current account; Competitiveness; Euro area; DSGE;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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