Abstract
We use an intertemporal model to examine the division of the eurozone area into countries with persistent trade account surpluses and those with persistent deficits. This is done by examining the trade account balances between a northern group of countries that are in persistent trade account surplus and a southern group of countries that have persistent deficits over the period 2001–2018. The theoretical model highlights the interaction of consumption, portfolio optimization between holdings of domestic and foreign bonds, fiscal balances, changes in the demand to hold money balances and changes in the pricing of risk in financial markets as reflected in changes in the interest rate differentials. We test the model using both the ARDL and Fully Modified OLS methodologies and find that it performs well empirically with relevant coefficients being both right signed and significant.
Original language | English |
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Article number | 102508 |
Number of pages | 18 |
Journal | Journal of International Money and Finance |
Volume | 121 |
Early online date | 25 Sept 2021 |
DOIs | |
Publication status | Published - Mar 2022 |
Bibliographical note
Funding Information:We are extremely grateful for comments on an earlier draft of this paper by participants at the October 2019, Jean Monnet Workshop on Current Account Imbalances in Brussels. We are especially grateful to the discussant Guiglielmo Maria Caporale for his many insightful comments. Thanks are also due to Joscha Beckmann and Ansgar Belke for their suggestions in relation to the empirical modelling. Finally, we are indebted to two anonymous referees for their helpful suggestions and insights.
Publisher Copyright:
© 2021 Elsevier Ltd
Keywords
- ARDL
- Eurozone
- FM-OLS
- GIIPS crisis
- Intertemporal
- Trade account
ASJC Scopus subject areas
- Finance
- Economics and Econometrics