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Title: Current Account Imbalances in Europe

Author(s): Philip R. Lane and Barbara Pels

Publication Date: May 2012

Keyword(s): current account, EMU and Europe

Programme Area(s): International Macroeconomics

Abstract: The European crisis is partly attributable to the sharp increase in external imbalances across Europe during the pre-crisis period. We examine current account imbalances in Europe over 1995-2007, together with the underlying saving and investment rates (and their subcomponents). We find that the discrete expansion in current account imbalances during the 2002-2007 period can be attributed to a strengthening in the link between growth forecasts and current account balances. A striking pattern was that greater optimism about future growth was associated with lower savings and higher construction investment, rather than investment in productive capital.

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Bibliographic Reference

Lane, P and Pels, B. 2012. 'Current Account Imbalances in Europe'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8958