What Drives the German Current Account? And How Does it Affect Other EU Member States?

63 Pages Posted: 2 Jun 2014

See all articles by Jan in 't Veld

Jan in 't Veld

European Union - Directorate General for Economic and Financial Affairs (DG ECFIN)

Robert Kollmann

ECARES, Université Libre de Bruxelles; University of Paris XII - Department of Economics; Centre for Economic Policy Research (CEPR)

Marco Ratto

European Commission - Joint Research Center

Werner Roeger

European Commission, DGECFIN

Lukas Vogel

European Union - European Commission

Multiple version iconThere are 2 versions of this paper

Date Written: April 2014

Abstract

We estimate a three-country model using 1995-2013 data for Germany, the Rest of the Euro Area (REA) and the Rest of the World (ROW) to analyze the determinants of Germany’s current account surplus after the launch of the Euro. The most important factors driving the German surplus were positive shocks to the German saving rate and to ROW demand for German exports, as well as German labour market reforms and other positive German aggregate supply shocks. The convergence of REA interest rates to German rates due to the creation of the Euro only had a modest effect on the German current account and on German real activity. The key shocks that drove the rise in the German current account tended to worsen the REA trade balance, but had a weak effect on REA real activity. Our analysis suggests these driving factors are likely to be slowly eroded, leading to a very gradual reduction of the German current account surplus. An expansion in German government consumption and investment would raise German GDP and reduce the current account surplus, but the effects on the surplus are likely to be weak.

Keywords: Current Account, estimated DSGE model, Eurozone crisis, intra-European imbalances, monetary union

JEL Classification: E3, F21, F3, F4

Suggested Citation

in 't Veld, Jan and Kollmann, Robert and Ratto, Marco and Roeger, Werner and Vogel, Lukas, What Drives the German Current Account? And How Does it Affect Other EU Member States? (April 2014). CEPR Discussion Paper No. DP9933, Available at SSRN: https://ssrn.com/abstract=2444956

Jan In 't Veld (Contact Author)

European Union - Directorate General for Economic and Financial Affairs (DG ECFIN) ( email )

CHAR 14/245
Brussels, Bruxelles B-1049
Belgium
(32 2) 2993 577 (Phone)
(32 2) 2957 499 (Fax)

Robert Kollmann

ECARES, Université Libre de Bruxelles ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium

University of Paris XII - Department of Economics ( email )

61 avenue du General de Gaulle
Creteil cedex, 94010
France

HOME PAGE: http://www.robertkollmann.com

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Marco Ratto

European Commission - Joint Research Center ( email )

Via E. Fermi 2749
Brussels, B-1049
Belgium

Werner Roeger

European Commission, DGECFIN ( email )

Economic and Financial Affairs
BU1-3/159, 200 Rue de la Loi
B-1049 Brussels
Belgium

Lukas Vogel

European Union - European Commission ( email )

Rue de la Loi 200
Brussels, B-1049
Belgium

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
0
Abstract Views
546
PlumX Metrics