The current crisis revealed the unsustainable levels of private sector indebtedness, fuelled by a prolonged period of rapid credit expansion during the upturn phase in some EU Member States. The subsequent deleveraging process now taking place, although necessary, stands as a source of concern...

This paper uses an estimated DSGE model to analyse the factors behind the build-up of imbalances in the Spanish economy. Shock decompositions suggest that external imbalances have been able to build up mainly due to the reduction in real interest rates and easier access to credit following the...