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Current Account ‘Core–Periphery Dualism’ in the EMU
Author(s) -
De Santis Roberta,
Cesaroni Tatiana
Publication year - 2016
Publication title -
the world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/twec.12418
Subject(s) - economics , financial integration , european union , european monetary union , international economics , core (optical fiber) , current account , divergence (linguistics) , monetary economics , economic and monetary union , dualism , member states , monetary policy , macroeconomics , financial market , finance , exchange rate , linguistics , philosophy , materials science , epistemology , composite material
Current account ( CA ) dispersion within European Union ( EU ) Member States has been increasing progressively since the 1990s. Interestingly, the persistent deficits in many peripheral countries have not been accompanied by a significant growth process able to stimulate a log run rebalancing as neoclassical theory predicts. To shed light on the issue, this paper investigates the determinants of Eurozone CA imbalances, focusing on the role played by financial integration. The analysis considers two samples of 22 OECD and 15 EU countries, three time horizons corresponding to various steps in European integration, different control variables and several panel econometric methods. The results suggest that within the EU group of countries financial integration contributed to explain the CA deterioration in the peripheral countries especially in the post‐ EMU period creating an asymmetric behaviour within the EMU . From a financial stability perspective, this ‘divergence’ could hinder the effectiveness of monetary policy. By reducing the apparent benefits of participating in the monetary union, it also raises the risk of a break‐up.