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Current Account Determination in the Eurozone

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Author: Filipek, Amy
Advisor: Schreiber, Till
Committee Members: Rosenfeld, Claire; Coibion, Olivier
Issued Date: 7/17/2012
Subjects: VAR
Current account
URI: http://hdl.handle.net/10288/16768
Description: While the eurozone's aggregate current account balance has remained near zero since its conception in 1999, the current accounts of individual members have been remarkably divergent; the peripheral or southern countries (Greece, Spain, Portugal, Ireland, and Italy) have run current account deficits approaching double digits and the core or northern countries (Germany, France, Netherlands, Finland, Austria, and Belgium) have run correspondingly large surpluses. The aim of this paper is to identify the economic, financial, and other factors that influence the current account balances of the eurozone countries and determine to what extent external imbalances are driven by the same set of factors across multiple member countries. If any of these factors represent structural imbalances, a policy priority for the eurozone must be to correct them. To this end, I review the relevant economic theory, literature, and stylized facts and use a dynamic panel system-GMM and country-specific VARs. Using these methods, I find evidence of the Twin Deficit Hypothesis, Convergence Hypothesis, and the Competitiveness Hypothesis; however, the peripheral countries' current account balances are most influenced by gross fixed capital investment.
Degree: Bachelors of Arts in Economics

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