Is There a Non-Zero Stable Component in the Eurozone’s External Balances?

Research output: Contribution to journalArticle

Abstract

We consider the potential presence of a structural component in the external balance of 12 Eurozone countries. To this aim, we define the Structural Component of the External Balance as the unobservable part of the external balance that is stable or evolves slowly and around which fluctuations occur with a potentially cyclical origin that are corrected in the short-term. We propose a methodology for obtaining the Structural Component of the External Balance by decomposing the external balance using breakpoint tests, and we contrast this methodology against other methods widely used in the economic literature. Moreover, we investigate the factors that determine the Structural Component of the External Balance of Eurozone countries. According to our results, Belgium, Germany, Luxembourg, and the Netherlands have a structural and persistent surplus, whereas Greece, Portugal, and Spain have structural deficits. Furthermore, our results indicate that export specialization, financial openness, and a government deficit/surplus are the key variables explaining the Structural Component of the External Balance.
Original languageEnglish
Pages (from-to)787-817
Number of pages31
JournalJournal of Economic Integration
Volume33
Issue number4
DOIs
Publication statusPublished - 1 Dec 2018

All Science Journal Classification (ASJC) codes

  • Economics, Econometrics and Finance(all)

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