Diaz Sanchez, Jose LuisVaroudakis, Aristomene2014-02-042014-02-042013-12https://hdl.handle.net/10986/16900The paper assesses the contribution of key factors associated with external imbalances in the Eurozone through the estimation of a panel-data vector autoregressive model over 1975-2011. Growth fluctuations, initially associated with demand booms triggered by unusually low interest rates and later with demand contractions resulting from the crisis and policy adjustments, have been key drivers of current account fluctuations. Changes in competitiveness, measured by real exchange rates or unit labor costs, have played a less important role. Demand shocks have contributed more to current account balance dynamics in the Eurozone periphery than in the core, whereas competitiveness has been a less prominent factor in the periphery but relatively more important in the core. Changes in competitiveness are positively associated with changes in growth. Preventing imbalances from building up in a context of growing financial integration and easy finance warrants enhanced mutual surveillance of fiscal imbalances, but also better regulation of credit markets to prevent excess leverage and concentration of lending in investments prone to speculative bubbles. Coordination of fiscal policy across the Eurozone would facilitate the management of external imbalances without placing an often unwarranted burden on fiscal tightening in countries with sound fiscal positions affected by credit booms. The policies of internal devaluation implemented in the periphery, aimed at promoting external competitiveness, may have had only limited effectiveness in restoring the external balance to equilibrium.en-USCC BY 3.0 IGOACCOUNTINGASSETSAVAILABILITY OF CREDITBANKING SECTORBANKING SYSTEMBILATERAL TRADEBONDBORROWING COSTSBUDGET CONSTRAINTBUDGET DEFICITSCAPITAL ACCUMULATIONCAPITAL FLIGHTCAPITAL FLOWSCAPITAL INFLOWSCENTRAL BANKCOMMERCIAL BANKSCOMMON CURRENCYCOMPETITIVENESSCONSUMER PRICE INDEXCONSUMER PRICE INFLATIONCONSUMERSCONSUMPTION SMOOTHINGCREDIT BOOMCREDIT BOOMSCREDIT GROWTHCREDIT MARKETCREDIT MARKETSCURRENT ACCOUNTCURRENT ACCOUNT BALANCECURRENT ACCOUNT BALANCESCURRENT ACCOUNT DEFICITCURRENT ACCOUNT DEFICITSCURRENT ACCOUNT IMBALANCESCURRENT ACCOUNT SURPLUSCURRENT ACCOUNT SURPLUSESCURRENT ACCOUNTSDEBT CRISISDEBT REPAYMENTDEBTORDEBTOR COUNTRIESDEPENDENCY RATIODEPENDENCY RATIOSDEPRECIATIONDEREGULATIONDEVALUATIONDEVELOPMENT ECONOMICSDEVELOPMENT POLICYDIMINISHING RETURNSDISCOUNT RATEDISTORTIONSDOMESTIC DEMANDDOMESTIC DEMAND GROWTHDOMESTIC SAVINGSECONOMETRICSECONOMIC CONTRACTIONECONOMIC CRISISECONOMIC GROWTHECONOMIC INTEGRATIONECONOMIC MODELECONOMIC OUTLOOKECONOMIC PERFORMANCEECONOMIC RELATIONSECONOMIC SIZEELASTICITYEMERGING MARKETEMERGING MARKET ECONOMIESENDOGENOUS VARIABLEENDOGENOUS VARIABLESENFORCEMENT MECHANISMEQUILIBRIUMERROR CORRECTION MODELEXCESS DEMANDEXCHANGE RATEEXCHANGE RATE DETERMINATIONEXCHANGE RATE RISKEXOGENOUS VARIABLEEXPORTSEXTERNAL BALANCEEXTERNAL BALANCESEXTERNAL BORROWINGEXTERNAL COMPETITIVENESSEXTERNAL DEBTEXTERNAL DEBTSEXTERNAL DEFICITEXTERNAL DEFICITSEXTERNAL DEMANDFEDERAL RESERVEFEDERAL RESERVE BANKFINANCIAL CRISISFINANCIAL INTEGRATIONFINANCIAL SECTORFISCAL BALANCEFISCAL BALANCESFISCAL DEFICITFISCAL DEFICITSFISCAL DISCIPLINEFISCAL IMBALANCESFISCAL POLICIESFISCAL POLICYFISCAL POSITIONSFIXED EFFECTSFIXED INCOMEFOREIGN DEBTFUNDAMENTAL DETERMINANTSGDPGDP PER CAPITAGOVERNMENT BONDSGOVERNMENT SPENDINGHUMAN CAPITALIMBALANCEIMBALANCESIMPORTSINCOME GROWTHINDEPENDENT MONETARY POLICYINFLATIONINFLATION RATEINSTRUMENTAL VARIABLEINTEREST PAYMENTSINTEREST RATE DIFFERENTIALSINTEREST RATESINTEREST-RATEINTERNATIONAL BANKINTERNATIONAL ECONOMICSINTERNATIONAL FINANCIAL INTEGRATIONINTERNATIONAL MONEYINVESTMENT BOOMINVESTMENT RATEINVESTMENT RATESINVESTMENT RATIOLABOR FORCELABOR MARKETLABOR MARKETSLACK OF COMPETITIONLESS DEVELOPED COUNTRIESLEVERAGELOANLONG-TERM INTERESTLOSS OF COMPETITIVENESSLOSS OF REVENUELOW INTEREST RATESMACROECONOMICSMARKET DEVELOPMENTSMARKET EQUILIBRIUMMARKET REFORMSMISALIGNMENTMONETARY POLICYMONETARY UNIONMORTGAGENOMINAL INTEREST RATENOMINAL WAGEOIL PRODUCING COUNTRIESOPEN ECONOMYPER CAPITA INCOMEPER CAPITA INCOMESPOLICY ON EXCHANGE RATESPOLITICAL STRIFEPRICE COMPETITIVENESSPRICE INDEXPRICE STABILITYPRODUCTIVITYPRODUCTIVITY GROWTHPUBLIC DEBTPUBLIC EXPENDITUREPUBLIC INVESTMENTSPUBLIC SPENDINGREAL EFFECTIVE EXCHANGE RATEREAL EFFECTIVE EXCHANGE RATESREAL EXCHANGE RATEREAL EXCHANGE RATE APPRECIATIONREAL EXCHANGE RATE MOVEMENTSREAL EXCHANGE RATESREAL GDPREAL INCOMEREAL INTERESTREAL INTEREST RATEREAL INTEREST RATESREAL LONG-TERM INTEREST RATEREAL LONG-TERM INTEREST RATESREAL WAGE GROWTHRECESSIONRELATIVE PRICEREPAYMENTSAVINGS RATESAVINGS RATESSLOWDOWNSSMOOTHING CONSUMPTIONSOVEREIGN DEBTSOVEREIGN RISKSTANDARD DEVIATIONSTRONG DEMANDSTRUCTURAL REFORMSTRUCTURAL REFORMSSTRUCTURAL SHOCKSSUPPLY-SIDESURPLUS COUNTRIESSURPLUSESTAXTAX REVENUESTIME HORIZONTRADABLE GOODSTRADE BALANCETRADE BALANCESTRADE SHOCKSTRADINGTRADING PARTNERSUNCOVERED INTEREST RATE PARITYUTILITY FUNCTIONVARIANCE-COVARIANCE MATRIXWAGESWARRANTSWORLD MARKETSWorld Bank10.1596/1813-9450-6732