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HOW DO MACROECONOMIC IMBALANCES INTERACT? EVIDENCE FROM A PANEL VAR ANALYSIS

Published online by Cambridge University Press:  15 July 2015

Blaise Gnimassoun  and
Valérie Mignon
Blaise Gnimassoun
Affiliation:
EconomiX-CNRS, University of Paris Ouest
Valérie Mignon*
Affiliation:
EconomiX-CNRS, University of Paris Ouest and CEPII
*
Address correspondence to: Valérie Mignon, EconomiX-CNRS, University of Paris Ouest, 200 avenue de la République, 92001 Nanterre Cedex, France; e-mail: valerie.mignon@u-paris10.fr.
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Abstract

This paper investigates the interactions between three key macroeconomic imbalances, namely current-account discrepancies (external imbalances), output gaps (internal imbalances), and exchange-rate misalignments. We estimate a panel VAR model for a sample of 22 industrialized countries over the period 1980–2011. Our findings show that macroeconomic imbalances strongly interact through a causal relationship. If current-account disequilibria threaten the stability of the global economy, their origin can be found in internal imbalances and exchange-rate misalignments: positive output-gap shocks as well as currency overvaluation deepen current-account deficits. In addition, although variations in external imbalances mainly result from exchange-rate misalignments in the euro area, they are mostly explained by output gaps for non-eurozone members.

Keywords

Global ImbalancesCurrent AccountOutput GapExchange-Rate MisalignmentsPanel VAR
Type
Articles
Information
Macroeconomic Dynamics , Volume 20 , Issue 7 , October 2016 , pp. 1717 - 1741
Copyright
Copyright © Cambridge University Press 2015 

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