Assessing the sustainability of external imbalances in the European Union

António Afonso, Florence Huart, João Tovar Jalles, Piotr Stanek

Research output: Contribution to journalArticle

Abstract

We assess the sustainability of the current account (CA) balance, net international investment position (NIIP) and net external debt (NED) in a sample of 22 EU countries using two complementary approaches. First, we employ time-series stationarity tests of current account balance-to-GDP ratios as well as cointegration tests of exports and imports of goods and services. Second, we assess the level of trade balance that stabilises the NIIP and the NED. We find that there is sustainability of the CA balance in eight countries, NIIP in five countries and NED in 10 countries, whereas there is evidence of a lack of sustainability in five debtor nations and three creditor nations. Both approaches are consistent with each other given the relationship between flows and stocks, the existence of structural breaks, and valuation effects via exchange rate and interest rate changes.

Original languageEnglish
Pages (from-to)320-348
JournalWorld Economy
Volume42
Issue number2
DOIs
Publication statusPublished - Feb 2019

Fingerprint

current account
indebtedness
sustainability
trade balance
creditor
interest rate
import
time series
EU
lack
evidence
Sustainability
European Union
External debt
Current account balance
International investments
External imbalances

Keywords

  • cointegration
  • current account
  • error correction
  • exports
  • imports
  • net foreign assets
  • structural breaks
  • unit roots

Cite this

Afonso, António ; Huart, Florence ; Jalles, João Tovar ; Stanek, Piotr. / Assessing the sustainability of external imbalances in the European Union. In: World Economy. 2019 ; Vol. 42, No. 2. pp. 320-348.
@article{624119385982481798ad207e9540b3e2,
title = "Assessing the sustainability of external imbalances in the European Union",
abstract = "We assess the sustainability of the current account (CA) balance, net international investment position (NIIP) and net external debt (NED) in a sample of 22 EU countries using two complementary approaches. First, we employ time-series stationarity tests of current account balance-to-GDP ratios as well as cointegration tests of exports and imports of goods and services. Second, we assess the level of trade balance that stabilises the NIIP and the NED. We find that there is sustainability of the CA balance in eight countries, NIIP in five countries and NED in 10 countries, whereas there is evidence of a lack of sustainability in five debtor nations and three creditor nations. Both approaches are consistent with each other given the relationship between flows and stocks, the existence of structural breaks, and valuation effects via exchange rate and interest rate changes.",
keywords = "cointegration, current account, error correction, exports, imports, net foreign assets, structural breaks, unit roots",
author = "Ant{\'o}nio Afonso and Florence Huart and Jalles, {Jo{\~a}o Tovar} and Piotr Stanek",
note = "Funding agency: FCT-Fundacao para a Ciencia e a Tecnologia and National Science Centre Poland (grant nr. DEC-2013/09/B/HS4/01907)",
year = "2019",
month = "2",
doi = "10.1111/twec.12709",
language = "English",
volume = "42",
pages = "320--348",
journal = "World Economy",
issn = "0378-5920",
publisher = "Wiley",
number = "2",

}

Assessing the sustainability of external imbalances in the European Union. / Afonso, António; Huart, Florence; Jalles, João Tovar; Stanek, Piotr.

In: World Economy, Vol. 42, No. 2, 02.2019, p. 320-348.

Research output: Contribution to journalArticle

TY - JOUR

T1 - Assessing the sustainability of external imbalances in the European Union

AU - Afonso, António

AU - Huart, Florence

AU - Jalles, João Tovar

AU - Stanek, Piotr

N1 - Funding agency: FCT-Fundacao para a Ciencia e a Tecnologia and National Science Centre Poland (grant nr. DEC-2013/09/B/HS4/01907)

PY - 2019/2

Y1 - 2019/2

N2 - We assess the sustainability of the current account (CA) balance, net international investment position (NIIP) and net external debt (NED) in a sample of 22 EU countries using two complementary approaches. First, we employ time-series stationarity tests of current account balance-to-GDP ratios as well as cointegration tests of exports and imports of goods and services. Second, we assess the level of trade balance that stabilises the NIIP and the NED. We find that there is sustainability of the CA balance in eight countries, NIIP in five countries and NED in 10 countries, whereas there is evidence of a lack of sustainability in five debtor nations and three creditor nations. Both approaches are consistent with each other given the relationship between flows and stocks, the existence of structural breaks, and valuation effects via exchange rate and interest rate changes.

AB - We assess the sustainability of the current account (CA) balance, net international investment position (NIIP) and net external debt (NED) in a sample of 22 EU countries using two complementary approaches. First, we employ time-series stationarity tests of current account balance-to-GDP ratios as well as cointegration tests of exports and imports of goods and services. Second, we assess the level of trade balance that stabilises the NIIP and the NED. We find that there is sustainability of the CA balance in eight countries, NIIP in five countries and NED in 10 countries, whereas there is evidence of a lack of sustainability in five debtor nations and three creditor nations. Both approaches are consistent with each other given the relationship between flows and stocks, the existence of structural breaks, and valuation effects via exchange rate and interest rate changes.

KW - cointegration

KW - current account

KW - error correction

KW - exports

KW - imports

KW - net foreign assets

KW - structural breaks

KW - unit roots

UR - http://www.scopus.com/inward/record.url?scp=85052804624&partnerID=8YFLogxK

U2 - 10.1111/twec.12709

DO - 10.1111/twec.12709

M3 - Article

VL - 42

SP - 320

EP - 348

JO - World Economy

JF - World Economy

SN - 0378-5920

IS - 2

ER -