Current Accounts in the Euro Area: An Intertemporal Approach

47 Pages Posted: 17 Jan 2007

See all articles by José Manuel Campa

José Manuel Campa

University of Navarra - Madrid Campus - IESE Business School; National Bureau of Economic Research (NBER)

Angel Gavilan Gonzalez

European Stability Mechanism

Date Written: 01/15/2007

Abstract

This paper uses an intertemporal model of the current account to evaluate the fluctuations in current account balances experienced by Euro area countries over the last three decades. In the model current account balances are used to smooth consumption and they are driven by expectations about future income and relative prices. This simple model is not rejected for six (Belgium, France, Italy, Netherlands, Portugal, and Spain) of the ten Euro area countries examined, although the model tends to underestimate their current account volatility. The analysis also shows that the relative contributions to current account balances of future output and relative prices differ across countries. Expectations of future growth increased in all Southern European countries at the creation of the Euro but they had considerably diverged by 2005. While in Portugal these expectations are now below its historical mean, in Spain they are at a historical high.

Keywords: intertemporal current account, financial integration, current account balances, euro area

JEL Classification: F32, F36

Suggested Citation

Campa, José Manuel and Gavilan Gonzalez, Angel, Current Accounts in the Euro Area: An Intertemporal Approach (01/15/2007). Banco de España Research Paper No. WP-0638, Available at SSRN: https://ssrn.com/abstract=957556 or http://dx.doi.org/10.2139/ssrn.957556

José Manuel Campa

University of Navarra - Madrid Campus - IESE Business School ( email )

Camino del Cerro del Aguila 3
Madrid, 28023
Spain
+34 91 357 0809 (Phone)
+34 91 357 2913 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Angel Gavilan Gonzalez (Contact Author)

European Stability Mechanism ( email )

6a Circuit de la Foire Internationale
L-1347
Luxembourg

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