Current Account Dynamics in New EU Members: Sustainability and Policy Issues

CEPII Working Paper No. 2004-07

52 Pages Posted: 19 Jun 2006

See all articles by Paolo Zanghieri

Paolo Zanghieri

Generali Investments Europe; University of Bologna - Department of Economics

Date Written: July 1, 2004

Abstract

The twelve Central and Eastern European Countries, which either joined the European Union in May 2004 or are scheduled to do so as early as 2007 , often show high current accounts deficit, which are sometimes close or even beyond those values common wisdom and past experience associate with a high probability of a Balance of Payment crisis. A natural question therefore arises: are these deficits sustainable or do some countries require policy action? A related question is how the current account is likely to evolve in the medium term. The natural horizon to consider is up to 2007/8 when, according to the maintained intentions, some of the new EU members will join EMU as well. The aim of this paper is to provide a tentative answer, by means of three different methods: an accounting exercise and a normative analysis based on an econometric estimation of the determinants of the current accounts, and a projection of external balances. The role of capital inflows, and in particular of Foreign Direct Investment (FDI) is stressed.

Keywords: Current account; new open macroeconomics; panel methods; transition economies

JEL Classification: F15, F14, F17

Suggested Citation

Zanghieri, Paolo, Current Account Dynamics in New EU Members: Sustainability and Policy Issues (July 1, 2004). Available at SSRN: https://ssrn.com/abstract=871453 or http://dx.doi.org/10.2139/ssrn.871453

Paolo Zanghieri (Contact Author)

Generali Investments Europe ( email )

Corso Italia 6
Milan, MI 20122
Italy

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy

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