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

Blaise Gnimassoun · Valérie Mignon

41 citations0/0 files storedMacroeconomic Dynamics

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Global Financial Crisis and Policies Monetary Policy and Economic Impact Economic Theory and Policy

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.

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References

1969Investigating Causal Relations by Econometric Models and Cross-spectral Methods 2003Testing for unit roots in heterogeneous panels 1980Macroeconomics and Reality 2007A simple panel unit root test in the presence of cross‐section dependence 1981Biases in Dynamic Models with Fixed Effects 2012Testing for Granger non-causality in heterogeneous panels 1954Essays in Positive Economics 1954Essays in Positive Economics.

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