TARGET2: Understanding the Glue that Keeps the Euro Together

Hristov, Nikolay; Hülsewig, Oliver; Wollmershäuser, Timo

doi:10.1007/978-3-319-93626-0_11

Highs and Lows of European Integration 2018

DOI: 10.1007/978-3-319-93626-0_11

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TARGET2: Understanding the Glue that Keeps the Euro Together

Nikolay Hristov¹,

Oliver Hülsewig

Timo Wollmershäuser

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2024

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Cited by 1 publication

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The Relationship Between the German Current Account and Financial Account: Evidence from the Toda-Yamamoto Causality Approach

Murai

2024

The Economists’ Voice

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The paper examines the causality between the German current account and financial account. It contrasts with past research which assumes the current account and financial account to be jointly determined by a saving-investment imbalance. Our analysis decomposes the current account into exports and imports (real resource flows) and the financial account into domestic capital outflows and foreign capital inflows (gross capital flows). Evidence from the Toda-Yamamoto causality test shows that for Germany from Q1.1980 to Q2.2023, the causality runs from the financial account to the current account. It is not real resource flows but gross capital flows which exert significant impacts on the German real exchange rate. The finding implies that over the long run, strong German capital outflows and weak foreign capital inflows contributed to weak wage growth and stagnant investment in Germany, sustaining the persistent German current account surpluses. A reduction of the German current account surpluses requires a policy mix of fiscal expansion and monetary tightening which would expand the absorption of German and foreign capital in the German economy.

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The Relationship Between the German Current Account and Financial Account: Evidence from the Toda-Yamamoto Causality Approach

Murai

2024

The Economists’ Voice

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TARGET2: Understanding the Glue that Keeps the Euro Together

Cited by 1 publication

References 7 publications

The Relationship Between the German Current Account and Financial Account: Evidence from the Toda-Yamamoto Causality Approach

The Relationship Between the German Current Account and Financial Account: Evidence from the Toda-Yamamoto Causality Approach

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