Macroeconomic Policy Making and Current Account Imbalances in the Euro Area

Abstract

The paper analyses the role of fiscal and monetary policy for the development of the current account imbalances in the euro area, including the most recent developments during the coronavirus crisis. Several financial transmission channels such as international bank lending, changes in TARGET2 balances, international rescue credit and government bond purchases of euro area central banks are identified. It is found that differing fiscal policy stances which have interacted differently with the ECB’s monetary policy have been at roots of first diverging and then converging current account positions in the euro area. Since the European financial and debt crisis, public financing mechanisms and the unconventional monetary of the ECB have contributed to the persistence of intra-euro area current account imbalances.

Transmission of the Global Bank Liquidity Shock: Evidence from the US Foreign Bank Loans to Southeast Asian Economies

“…A sudden loss in a lender country may force their banks to withdraw their portfolio from borrower countries due to the rebalancing risk and satisfying regulatory constraints (Albrizio et al, 2020;Choi et al, 2021;Park & Shin, 2021). Atyabi et al (2020) and Murai and Schnabl (2021) explained that this kind of capital outflow might transmit turmoil over the globe, especially the borrowers. Therefore, research tends to place a particular emphasis on the transmission of the global financial crisis becomes fascinating to be explored.…”