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Current accounts in the euro area: An intertemporal approach

Author

Listed:
  • Campa, Jose M.

    (IESE Business School)

  • Gavilán, Angel

    (Banco de España)

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.

Suggested Citation

  • Campa, Jose M. & Gavilán, Angel, 2006. "Current accounts in the euro area: An intertemporal approach," IESE Research Papers D/651, IESE Business School.
    • Handle: RePEc:ebg:iesewp:d-0651
    as

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    File URL: http://www.iese.edu/research/pdfs/DI-0651-E.pdf
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    More about this item

    Keywords

    Current account; euro; external deficits; economic integration;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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