On the Empirical Evidence of the Intertemporal Current Account Model for the Euro Area Countries

12 Pages Posted: 17 Jan 2012

See all articles by Michele Ca' Zorzi

Michele Ca' Zorzi

European Central Bank (ECB)

Michał Rubaszek

National Bank of Poland; Warsaw School of Economics (SGH)

Date Written: February 2012

Abstract

A simple intertemporal current account model is found to explain successfully the current account configuration in the euro area before the Great Recession. The analysis suggests that consumption smoothing, prompted by expectations of economic convergence and the removal of exchange rate risk, has been an important driving force for the build‐up of current account divergence in the euro area since the creation of monetary union. The model also predicts that current account deficits and surpluses would narrow under a post‐crisis scenario of moderate catching‐up and more segmented bond markets.

Suggested Citation

Ca' Zorzi, Michele and Rubaszek, Michal, On the Empirical Evidence of the Intertemporal Current Account Model for the Euro Area Countries (February 2012). Review of Development Economics, Vol. 16, Issue 1, pp. 95-106, 2012. Available at SSRN: https://ssrn.com/abstract=1986575 or http://dx.doi.org/10.1111/j.1467-9361.2011.00648.x

Michele Ca' Zorzi (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Michal Rubaszek

National Bank of Poland ( email )

00-919 Warsaw
Poland

Warsaw School of Economics (SGH) ( email )

aleja Niepodleglosci 162
PL-Warsaw, 02-554
Poland

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