The Evolution of Current Account Deficits in the Euro Area Periphery and the Baltics: Many Paths to the Same Endpoint

24 Pages Posted: 8 Aug 2013

See all articles by Joong Shik Kang

Joong Shik Kang

International Monetary Fund (IMF)

Jay Shambaugh

Dartmouth College - Department of Economics; Georgetown University - Department of Strategy/Economics/Ethics/Public Policy

Date Written: July 2013

Abstract

Explanations of the large current account deficits for the euro area periphery and the Baltics in the run up to the crisis revolve around two main factors: deteriorating export performance or demand driven booms. We add that there were important movements in transfers and net income balances. While export performance remained relatively stable in most countries, for some countries, when transfers declined, households and firms borrowed so as to maintain the same level of spending. This was part of a persistent failure to adjust to trade deficits, which, along with rising net income payments, led to growing current account deficits. All of these factors played varying roles in the development of current account deficits across these countries.

Keywords: Current account deficits, Euro Area, Greece, Portugal, Spain, Ireland, Baltics, Exports, Imports, Cross country analysis, current account deficit, transfer, income balance, competitiveness, domestic boom, export performance, current account, merchandise export, reer, export market, current account deficits, export market share, export sector, export growth, service exports, capital flows, merchandise exports, unit labor costs, export volume, trade surplus, export market shares, exporters, export markets, export share, currency risk, increased exports, export goods, domestic growth, export sectors, rapid export growth, global competitiveness, current account balance, current account deficit

JEL Classification: F24, F32, F41

Suggested Citation

Kang, Joong Shik and Shambaugh, Jay, The Evolution of Current Account Deficits in the Euro Area Periphery and the Baltics: Many Paths to the Same Endpoint (July 2013). IMF Working Paper No. 13/169. Available at SSRN: https://ssrn.com/abstract=2307412

Joong Shik Kang

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Jay Shambaugh

Dartmouth College - Department of Economics ( email )

309 Rockefeller Hall
Hanover, NH 03755
United States
603-646-9345 (Phone)
603-646-2122 (Fax)

HOME PAGE: http://www.dartmouth.edu/~economic/faculty/Shambaugh/

Georgetown University - Department of Strategy/Economics/Ethics/Public Policy

Washington, DC 20057
United States

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