Based on a new database of bilateral financial flows among euro area countries and their major world partners, this paper explores the role of financial links in the accumulation and then adjustment of current account imbalances in the euro area. The data show that the geography of financial...

A ‘sudden stop’ to (private) capital inflows is usually very disruptive to an economy because it forces an almost immediate reversal in the current account unless the country in question receives substantial balance of payments assistance. The analysis presented in this paper starts from the...

Global and European trade balances have seen strong divergences combined with strong movements in the exchange rate. Trade balances and real effective exchange rates are related. Using different measures of the real effective exchange rate, we show that this long-run link hinges on the relative...

We investigate the behaviour of gross capital flows and net capital flows for euro area member countries. We highlight the extraordinary boom-bust cycles in both gross flows and net flows since 2003. We also show that the reversal in net capital flows during the crisis has been very costly in...

In a demand system with conventional CES preferences, the price elasticitites of aggregate trade flows are weighted averages of sector-specific elasticities of substitution. We describe a methodology that can be used to estimate country-specific values for the price elasticities of aggregate...

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...

The purpose of the present paper is to review the sources of France's trade surplus in recent years and to attribute trade balance movements strictly to those determinants of trade flows suggested by economic theory. These determinants are price and/or cost developments, and demand in France and...

The financial and economic crisis has generated renewed interest, especially among policy-makers, in early-warning systems that could help identifying fiscal and macro-financial vulnerabilities potentially triggering risks. Against this background, this paper presents an early-warning index of...

I analyze the nature of the design failures of the Eurozone. I argue first that the endogenous dynamics of booms and busts that are endemic in capitalism continued to work at the national level in the Eurozone and that the monetary union in no way disciplined these into a union-wide dynamics. On...

Summary for non-specialistsThis paper compares alternative methodologies for estimating real exchange rate misalignment for EU countries. It is shown that current account-based approaches (based on NFA stabilisation and current account norms) and relative-price based approaches (BEER and...