HOW DO MACROECONOMIC IMBALANCES INTERACT? EVIDENCE FROM A PANEL VAR ANALYSIS. (15th July 2015)

• Record Type: Journal Article
• Authors: Gnimassoun, Blaise; Mignon, Valérie
• Is Part Of: Macroeconomic dynamics. Volume 20:Number 7(2016:Oct.)
• Page Start: 1717
• Page End: 1741
• Publication Date: 2015-07-15
• Subjects: Global Imbalances, -- Current Account, -- Output Gap, -- Exchange-Rate Misalignments, -- Panel VAR; Macroeconomics -- Periodicals; 339.05
• DOI: 10.1017/S136510051500005X
• Languages: English
• ISSNs: 1365-1005

Abstract

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.