Current Account Deficits in the Euro Area. The End of the Feldstein Horioka Puzzle?

Blanchard, Olivier J.; Giavazzi, Francesco

doi:10.2139/ssrn.372880

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Current Account Deficits in the Euro Area. The End of the Feldstein Horioka Puzzle?

56 Pages Posted: 23 Jan 2003

See all articles by Olivier J. Blanchard

Olivier J. Blanchard

National Bureau of Economic Research (NBER); Peterson Institute for International Economics

Francesco Giavazzi

National Bureau of Economic Research (NBER); University of Bocconi - Innocenzo Gasparini Institute for Economic Research (IGIER); Centre for Economic Policy Research (CEPR)

Date Written: September 17, 2002

Abstract

Both Portugal and Greece have been running large current account deficits, and these are expected to continue in the future. Yet, financial markets do not appear to be worried. Starting from this observation, we document that Portugal and Greece are in fact representative of a broader evolution: Increasing goods and financial market integration is leading to an increasing decoupling of saving and investment within the European Union, and even more so within the Euro area. In particular, it is allowing poorer countries to invest more, save less, and run larger current account deficits. The converse holds for the richer countries.

Keywords: Current Account, Europe, Euro, Feldstein Horioka Puzzle, Saving, Investment, Capital Market Integration, Product Market Integration

JEL Classification: F32, F36, F41, F43

Suggested Citation: Suggested Citation

Blanchard, Olivier J. and Giavazzi, Francesco and Giavazzi, Francesco, Current Account Deficits in the Euro Area. The End of the Feldstein Horioka Puzzle? (September 17, 2002). Available at SSRN: https://ssrn.com/abstract=372880 or http://dx.doi.org/10.2139/ssrn.372880