Abstract
The aim of this paper is to study the main macroeconomic, financial and structural characteristics that affected current account developments in the member-states of the euro area over the period 1980–2008. The model is based on the intertemporal consumption smoothing approach according to which current account positions are determined by saving and investment decisions. The analysis uses a panel of countries that consists of the initial 12 member states of the euro area and then it expands to 17 countries aiming to see whether the enlargement or potential enlargement would in any way alter the current account determinants. All the determinants of saving and investment decisions, which include factors such as the level of development, demographics, macroeconomic policies and competitiveness, appear to be important in underpinning sustained current account positions in the euro area countries.
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Notes
Slovenia and Slovakia are excluded from our empirical analysis since a considerable part of the sample extends over a time period during which these countries were still under central planning and not market economies.
See, also Brissimis et al. (2009).
According to the life-cycle hypothesis the young and the old are net consumers, while the working individuals are net savers. See also Brissimis et al. (2009).
For a more complete discussion see a recent paper by Afonso and Rault (2008). The authors used panel cointegration tests to ascertain the effect of budget balances on current account balances, and their results were mixed. See, also, Briotti (2005), Bussière et al. (2004) and Debelle and Faruqee (1996).
Pooling time series has resulted in a substantial trade-off in terms of the permissible heterogeneity of the individual time series. Testing for co-integration among the variables should permit for as much heterogeneity as possible among the individual countries of the panel. If pooled results rely on homogeneous panel, then common slope coefficients are imposed. Pesaran and Smith (1995) show that if a common estimator is used when there are differences among the individual countries then the variables are not co-integrated.
The results for the unit root tests for country specific data are available upon request.
The evidence of the existence of Ricardian equivalence in the long-run equation for Belgium, Austria, Germany, The Netherlands and Spain seems to be in line with the relatively high savings ratios recorded in those countries since the introduction of the euro, but seems at odds in the case of Portugal, where significant decrease in the national saving ratio has been observed since 1999. This finding might suggest a shift of the private sector in Portugal towards a more Keynesian behaviour after 1999.
Schmitz and von Hagen (2009) find that the elasticity with respect to per-capita incomes of net capital flows between euro-area countries has increased, while this is not the case between the euro area and non euro-area countries or the rest of the world. This evidence suggests increased financial integration in the euro area.
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Brissimis, S.N., Hondroyiannis, G., Papazoglou, C. et al. The determinants of current account imbalances in the euro area: a panel estimation approach. Econ Change Restruct 46, 299–319 (2013). https://doi.org/10.1007/s10644-012-9129-0
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DOI: https://doi.org/10.1007/s10644-012-9129-0