Current Account Imbalances and Real Exchange Rates in the Euro Area

18 Pages Posted: 20 Aug 2008

See all articles by Michael Arghyrou

Michael Arghyrou

University of Piraeus

Georgios E. Chortareas

University of Athens - Faculty of Economics; University of Essex - Department of Accounting, Finance & Management; King's College London

Abstract

Global current account imbalances have been one of the focal points of interest for policymakers during the last few years. Less attention has been paid, however, to the diverging current account balances of the individual euro area countries. In this paper we consider the dynamics of current account adjustment and the role of real exchange rates in current account determination in the EMU countries. After controlling for the effects of income growth, we find the relationship between real exchange rates and current accounts to be substantial in size and subject to nonlinear effects. We find that real exchange rates can offer further insights, beyond the effects of the income catch-up process, relevant to current account determination in the EMU.

Suggested Citation

Arghyrou, Michael and Chortareas, Georgios, Current Account Imbalances and Real Exchange Rates in the Euro Area. Review of International Economics, Vol. 16, Issue 4, pp. 747-764, September 2008. Available at SSRN: https://ssrn.com/abstract=1239375 or http://dx.doi.org/10.1111/j.1467-9396.2008.00773.x

Michael Arghyrou (Contact Author)

University of Piraeus ( email )

Karaoli & Dimitriou 80
Piraeus, 18534
Greece
19 (Fax)

HOME PAGE: http://ideas.repec.org/e/par104.html

Georgios Chortareas

University of Athens - Faculty of Economics ( email )

8 Pesmazoglou street
GR-10559 Athens
Greece
+(30) 210 3689805 (Phone)
+(30) 210 3689810 (Fax)

University of Essex - Department of Accounting, Finance & Management ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

King's College London ( email )

Strand
London, England WC2R 2LS
United Kingdom

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