Before the Fall

2017 ◽  
Author(s):  
Martin Sandbu
Keyword(s):  
Interest Rate ◽  
Exchange Rates ◽  
Monetary Union ◽  
Current Account ◽  
Real Exchange Rates ◽  
Central Banks ◽  
Current Account Deficits ◽  
Nominal Exchange Rates ◽  
European Economies

This chapter discusses the role of Europe's monetary union in creating a crisis that first erupted in US mortgages. Because of their monetary union, European economies racked up greater risks in the 2000s boom than they would have done had they kept their individual currencies. The factors invoked to blame the euro include the destabilising effect of a single interest rate for the entire eurozone; the misalignment of real exchange rates when nominal exchange rates could no longer adjust; the ability to run current account deficits that were too large and lasted too long; and, finally, the fact that debt was accumulated in a currency that could not be printed at will by national central banks. The chapter argues that all these factors have been commonly misunderstood.

2014 Pilot External Sector Report - Individual Economy Assessments

Policy Papers ◽  
2014 ◽  
Vol 2014 (34) ◽  
Author(s):  
Keyword(s):  
Exchange Rates ◽  
Current Account ◽  
Real Exchange Rates ◽  
International Reserves ◽  
Balance Assessment ◽  
Assessment Approach ◽  
External Sector ◽  
Individual Economy ◽  
Current Account Balances

The external sector assessments use a range of methods and metrics, including the External Balance Assessment approach developed by the IMF’s Research Department to estimate desirable levels of current account balances and real exchange rates (Box 3 of the 2014 Pilot External Sector Report discusses the use of this methodology). The overall assessments of external positions are based on the judgment of IMF staff drawing on the inputs provided by these model estimates and other analysis, including assessment of international reserves holdings, while taking account of relevant uncertainties. The assessments, which are multilaterally consistent, highlight the role of policies in shaping external positions.

Current account balances in Central America 1974–1984: external and domestic influences

1987 ◽  
Vol 19 (1) ◽  
pp. 87-111 ◽  
Author(s):  
William Loehr
Keyword(s):  
Exchange Rates ◽  
Interest Rates ◽  
Current Account ◽  
Real Exchange Rates ◽  
Developed Countries ◽  
Central American ◽  
Budget Deficits ◽  
External Variables ◽  
The Developed Countries ◽  
Current Account Balances

SummaryThis paper examines the sensitivity of current account balances to several important variables. Variables are classified as external and domestic. External variables are those over which Central American countries have little or no control. In this study external variables are real interest rates in world capital markets, the terms of trade, and growth in the developed countries. Low real interest rates, improved terms of trade and rapid growth in the developed countries would be expected to improve current account balances. Domestic variables include budget deficits and real exchange rates. These are factors over which Central American countries do have control. Budget deficits and appreciations of real exchange rates can be expected to cause deteriorations in current account balances.

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