IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/2014-130.html
   My bibliography  Save this paper

Rebalancing in the Euro Area and Cyclicality of Current Account Adjustments

Author

Listed:
  • Mr. Thierry Tressel
  • Mr. Shengzu Wang

Abstract

The paper examines progress with the external rebalancing of euro area deficit countries. Relative prices are adjusting at different pace across countries and with different compositions of wage cuts and labor shedding. There is so far limited evidence of resource re-allocation from non-tradable to tradable sectors, while improved export performance is still dependent on external demand from the rest of world. Current account adjustments have taken place, reflecting structural changes but also cyclical forces, suggesting that part of the improvements may unwind when cyclical conditions improve. Looking ahead, relying only on relative price adjustments (which adversely affects demand) to rebalance the euro area could prove very challenging. Structural reforms will play an important role in the reallocation of resources to the tradable sector and the associated relative price adjustment, while boosting non-price and price competitiveness.

Suggested Citation

  • Mr. Thierry Tressel & Mr. Shengzu Wang, 2014. "Rebalancing in the Euro Area and Cyclicality of Current Account Adjustments," IMF Working Papers 2014/130, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2014/130
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=41770
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Mr. Jarkko Turunen & Mr. Richard T. Harmsen & Mr. Tamim Bayoumi, 2011. "Euro Area Export Performance and Competitiveness," IMF Working Papers 2011/140, International Monetary Fund.
    2. Claudio BorioBy & Piti Disyatat & Mikael Juselius, 2017. "Rethinking potential output: embedding information about the financial cycle," Oxford Economic Papers, Oxford University Press, vol. 69(3), pages 655-677.
    3. Morris Goldstein & Mohsin S. Khan, 2017. "Income and Price Effects in Foreign Trade," World Scientific Book Chapters, in: TRADE CURRENCIES AND FINANCE, chapter 1, pages 3-81, World Scientific Publishing Co. Pte. Ltd..
    4. Lone Christiansen & Alessandro Prati & Luca Antonio Ricci & Thierry Tressel, 2010. "External Balance in Low-Income Countries," NBER Chapters, in: NBER International Seminar on Macroeconomics 2009, pages 265-322, National Bureau of Economic Research, Inc.
    5. Olivier Blanchard, 2007. "Adjustment within the euro. The difficult case of Portugal," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 6(1), pages 1-21, April.
    6. Ms. Mwanza Nkusu, 2013. "Boosting Competitiveness to Grow Out of Debt: Can Ireland Find a Way Back to Its Future?," IMF Working Papers 2013/035, International Monetary Fund.
    7. Rudolfs Bems & Robert C. Johnson, 2012. "Value-Added Exchange Rates," NBER Working Papers 18498, National Bureau of Economic Research, Inc.
    8. Philip R. Lane, 2006. "The Real Effects of European Monetary Union," Journal of Economic Perspectives, American Economic Association, vol. 20(4), pages 47-66, Fall.
    9. Mr. Joong S Kang & Mr. Jay C Shambaugh, 2013. "The Evolution of Current Account Deficits in the Euro Area Periphery and the Baltics: Many Paths to the Same Endpoint," IMF Working Papers 2013/169, International Monetary Fund.
    10. Anna Ivanova, 2012. "Current Account Imbalances: Can Structural Policies Make a Difference?," IMF Working Papers 2012/061, International Monetary Fund.
    11. Mr. Steven T Phillips & Mr. Luis Catão & Mr. Luca A Ricci & Mr. Rudolfs Bems & Ms. Mitali Das & Mr. Julian Di Giovanni & Ms. Filiz D Unsal & Marola Castillo & Jungjin Lee & Jair Rodriguez & Mr. Mauric, 2013. "The External Balance Assessment (EBA) Methodology," IMF Working Papers 2013/272, International Monetary Fund.
    12. Mr. Thierry Tressel & Mr. Shengzu Wang & Mr. Joong S Kang & Mr. Jay C Shambaugh & Mr. Jörg Decressin & Ms. Petya Koeva Brooks, 2014. "Adjustment in Euro Area Deficit Countries: Progress, Challenges, and Policies," IMF Staff Discussion Notes 2014/007, International Monetary Fund.
    13. Rishi Goyal & Petya Koeva Brooks & Mahmood Pradhan & Thierry Tressel & Giovanni Dell'Ariccia & Ceyla Pazarbasioglu, 2013. "A Banking Union for the Euro Area," IMF Staff Discussion Notes 13/01, International Monetary Fund.
    14. Olivier Blanchard & Francesco Giavazzi, 2002. "Current Account Deficits in the Euro Area: The End of the Feldstein Horioka Puzzle?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2), pages 147-210.
    15. Lane, Philip & Pels, Barbara, 2012. "Current Account Imbalances in Europe," CEPR Discussion Papers 8958, C.E.P.R. Discussion Papers.
    16. Mr. Ruben V Atoyan & Mr. Jonathan F Manning & Jesmin Rahman, 2013. "Rebalancing: Evidence from Current Account Adjustment in Europe," IMF Working Papers 2013/074, International Monetary Fund.
    17. Thierry Tressel & Shengzu Wang & Joong S Kang & Jay C Shambaugh & Jörg Decressin & Petya Koeva Brooks, 2014. "Adjustment in Euro Area Deficit Countries; Progress, Challenges, and Policies," IMF Staff Discussion Notes 14/7, International Monetary Fund.
    18. Ms. Florence Jaumotte & Piyaporn Sodsriwiboon, 2010. "Current Account Imbalances in the Southern Euro Area," IMF Working Papers 2010/139, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mariam Camarero & Josep Lluís Carrion‐i‐Silvestre & Cecilio Tamarit, 2021. "External imbalances from a GVAR perspective," The World Economy, Wiley Blackwell, vol. 44(11), pages 3202-3245, November.
    2. Michael Bleaney & Lin Yin, 2015. "Price Adjustment in Currency Unions," Discussion Papers 15/06, University of Nottingham, School of Economics.
    3. Lukas Vogel, 2017. "Stabilization and Rebalancing with Fiscal or Monetary Devaluation: a Model-Based Comparison," CESifo Economic Studies, CESifo Group, vol. 63(2), pages 235-253.
    4. Belke, Ansgar & Gros, Daniel, 2017. "Optimal adjustment paths in a monetary union," Economic Modelling, Elsevier, vol. 67(C), pages 338-345.
    5. Ozhan, Galip Kemal, 2020. "Financial intermediation, resource allocation, and macroeconomic interdependence," Journal of Monetary Economics, Elsevier, vol. 115(C), pages 265-278.
    6. Serhan Cevik & Jan Gottschalk & Eric Hutton & Laura Jaramillo & Pooja Karnane & Mousse Sow, 2019. "Structural transformation and tax efficiency," International Finance, Wiley Blackwell, vol. 22(3), pages 341-379, December.
    7. Staehr, Karsten & Vermeulen, Robert, 2016. "How competitiveness shocks affect macroeconomic performance across euro area countries," Working Paper Series 1940, European Central Bank.
    8. Pierluigi, Beatrice & Sondermann, David, 2018. "Macroeconomic imbalances in the euro area: where do we stand?," Occasional Paper Series 211, European Central Bank.
    9. Enno Schröder, 2015. "Eurozone Imbalances: Measuring the Contribution of Expenditure Switching and Expenditure Volumes 1990-2013," Working Papers 1508, New School for Social Research, Department of Economics, revised Sep 2015.
    10. Belke, Ansgar & Gros, Daniel, 2016. "Negative Rates and Seigniorage: Turning the central bank business model upside down? The special case of the ECB," CEPS Papers 11753, Centre for European Policy Studies.
    11. Hohberger, Stefan & Kraus, Lena, 2016. "Is fiscal devaluation welfare enhancing?," Economic Modelling, Elsevier, vol. 58(C), pages 512-522.
    12. Serranito, Francisco, 2015. "Dévaluation interne, politiques structurelles et réductions des déficits publics : les réponses apportées par la « troïka » sont-elles un remède aux déséquilibres externes des pays périphériques de la," Revue de la Régulation - Capitalisme, institutions, pouvoirs, Association Recherche et Régulation, vol. 18.
    13. Radovan Kovačević, 2018. "Structural And Cyclical Factors Of Serbia’S Current Account," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 63(217), pages 75-98, April – J.
    14. Ozhan, Galip Kemal, 2020. "Financial intermediation, resource allocation, and macroeconomic interdependence," Journal of Monetary Economics, Elsevier, vol. 115(C), pages 265-278.
    15. Radovan Kovačević, 2019. "The Export Performance Of The Euro Area: A Panel Quantile Regression Approach," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 64(222), pages 7-62, July – Se.
    16. Mar Delgado-Téllez & Enrique Moral-Benito & Francesca Viani, 2020. "An anatomy of the Spanish current account adjustment: the role of permanent and transitory factors," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 11(4), pages 501-529, December.
    17. Carlos A. Ibarra, 2016. "Investment, asset market, and the relative unit labor cost in Mexico," Economic Change and Restructuring, Springer, vol. 49(4), pages 339-364, November.
    18. Tkačevs, Olegs & Christodoulopoulou, Styliani & Bobeica, Elena, 2016. "The role of price and cost competitiveness for intra- and extra-euro area trade of euro area countries," Working Paper Series 1941, European Central Bank.
    19. Ana Fontoura Gouveia & Filipa Canas, 2016. "Reallocation of Resources between Tradable and Non-Tradable Sectors in Portugal: Developing a new Identification Strategy for the Tradable Sector," GEE Papers 0060, Gabinete de Estratégia e Estudos, Ministério da Economia, revised Feb 2016.
    20. Camba-Crespo Alfonso & García-Solanes José & Torrejón-Flores Fernando, 2022. "Current-Account Imbalances, Real Exchange-Rate Misalignments, and Output Gaps," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 16(1), pages 57-72, January.
    21. Staehr, Karsten & Vermeulen, Robert, 2016. "How competitiveness shocks affect macroeconomic performance across euro area countries," Working Paper Series 1940, European Central Bank.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mr. Joong S Kang & Mr. Jay C Shambaugh, 2014. "Progress Towards External Adjustment in the Euro Area Periphery and the Baltics," IMF Working Papers 2014/131, International Monetary Fund.
    2. Florian Morvillier, 2018. "On the impact of the launch of the euro on EMU macroeconomic vulnerability," EconomiX Working Papers 2018-51, University of Paris Nanterre, EconomiX.
    3. Ms. Ruo Chen & Mr. Gian M Milesi-Ferretti & Mr. Thierry Tressel, 2012. "External Imbalances in the Euro Area," IMF Working Papers 2012/236, International Monetary Fund.
    4. Enno Schröder, 2015. "Eurozone Imbalances: Measuring the Contribution of Expenditure Switching and Expenditure Volumes 1990-2013," Working Papers 1508, New School for Social Research, Department of Economics, revised Sep 2015.
    5. Pierluigi, Beatrice & Sondermann, David, 2018. "Macroeconomic imbalances in the euro area: where do we stand?," Occasional Paper Series 211, European Central Bank.
    6. Mr. Joong S Kang & Mr. Jay C Shambaugh, 2013. "The Evolution of Current Account Deficits in the Euro Area Periphery and the Baltics: Many Paths to the Same Endpoint," IMF Working Papers 2013/169, International Monetary Fund.
    7. Vassilis Monastiriotis & Cigdem Borke Tunali, 2020. "The Sustainability of External Imbalances in the European Periphery," Open Economies Review, Springer, vol. 31(2), pages 273-294, April.
    8. D. Siena, 2014. "The European Monetary Union and Imbalances: Is it an Anticipation Story ?," Working papers 501, Banque de France.
    9. Florian Morvillier, 2018. "On the impact of the launch of the euro on EMU macroeconomic vulnerability," Working Papers hal-04141675, HAL.
    10. Elena Angelini & Michele Ca’ Zorzi & Katrin Forster van Aerssen, 2016. "External and Macroeconomic Adjustment in the Larger Euro-Area Countries," International Finance, Wiley Blackwell, vol. 19(3), pages 269-291, December.
    11. Dimitris Doulos & Odysseus Katsaitis & George Zombanakis, 2020. "Is the emphasis on unit labor costs an effective export-promoting policy? A comparison between Greece and Portugal," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 10(3), pages 393-410, September.
    12. Giuseppe Caivano & Nicola D. Coniglio, 2016. "Long-Run Drivers of Current Account Imbalances in the EU: the Role of Trade Openness," SERIES 03-2016, Dipartimento di Economia e Finanza - Università degli Studi di Bari "Aldo Moro", revised May 2016.
    13. Philip R. Lane, 2013. "Growth And Adjustment Challenges For The Euro Area," The Economic and Social Review, Economic and Social Studies, vol. 44(2), pages 273-295.
    14. Mariarosaria Comunale & Jeroen Hessel, 2014. "Current account imbalances in the Euro area: Competitiveness or financial cycle?," DNB Working Papers 443, Netherlands Central Bank, Research Department.
    15. Herrmann, Sabine & Kleinert, Jörn, 2014. "Lucas paradox and allocation puzzle: Is the euro area different?," Discussion Papers 06/2014, Deutsche Bundesbank.
    16. Friesenbichler, Klaus S. & Glocker, Christian, 2019. "Tradability and productivity growth differentials across EU Member States," Structural Change and Economic Dynamics, Elsevier, vol. 50(C), pages 1-13.
    17. Sergio Cesaratto, 2012. "Controversial and novel features of the Eurozone crisis as a balance of payment crisis," Department of Economics University of Siena 640, Department of Economics, University of Siena.
    18. Angelini, E. & Dieppe, A. & Pierluigi, B., 2015. "Modelling internal devaluation experiences in Europe: Rational or learning agents?," Journal of Macroeconomics, Elsevier, vol. 43(C), pages 81-92.
    19. Walter Paternesi Meloni, 2017. "Austerity & Competitiveness in the Eurozone: a misleading linkage," Departmental Working Papers of Economics - University 'Roma Tre' 0223, Department of Economics - University Roma Tre.
    20. repec:diw:diwwpp:dp1106 is not listed on IDEAS
    21. Paternesi Meloni, Walter, 2016. "Austerity and competitiveness in the Eurozone: a misleading linkage," MPRA Paper 75962, University Library of Munich, Germany.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:2014/130. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Akshay Modi (email available below). General contact details of provider: https://edirc.repec.org/data/imfffus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.