Modelling the trade balance between the northern and southern eurozone using an intertemporal approach

Tjeerd Boonman; Ioannis  Litsios; Keith Pilbeam; William Pouliot

doi:10.1016/j.jimonfin.2021.102508

Modelling the trade balance between the northern and southern eurozone using an intertemporal approach

Tjeerd Boonman, Ioannis Litsios, Keith Pilbeam, William Pouliot

Economics

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Abstract

We use an intertemporal model to examine the division of the eurozone area into countries with persistent trade account surpluses and those with persistent deficits. This is done by examining the trade account balances between a northern group of countries that are in persistent trade account surplus and a southern group of countries that have persistent deficits over the period 2001–2018. The theoretical model highlights the interaction of consumption, portfolio optimization between holdings of domestic and foreign bonds, fiscal balances, changes in the demand to hold money balances and changes in the pricing of risk in financial markets as reflected in changes in the interest rate differentials. We test the model using both the ARDL and Fully Modified OLS methodologies and find that it performs well empirically with relevant coefficients being both right signed and significant.

Original language	English
Article number	102508
Number of pages	18
Journal	Journal of International Money and Finance
Volume	121
Early online date	25 Sept 2021
DOIs	https://doi.org/10.1016/j.jimonfin.2021.102508
Publication status	Published - Mar 2022

Bibliographical note

Funding Information:
We are extremely grateful for comments on an earlier draft of this paper by participants at the October 2019, Jean Monnet Workshop on Current Account Imbalances in Brussels. We are especially grateful to the discussant Guiglielmo Maria Caporale for his many insightful comments. Thanks are also due to Joscha Beckmann and Ansgar Belke for their suggestions in relation to the empirical modelling. Finally, we are indebted to two anonymous referees for their helpful suggestions and insights.

Publisher Copyright:
© 2021 Elsevier Ltd

Keywords

ARDL
Eurozone
FM-OLS
GIIPS crisis
Intertemporal
Trade account

ASJC Scopus subject areas

Finance
Economics and Econometrics

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Cite this

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title = "Modelling the trade balance between the northern and southern eurozone using an intertemporal approach",

abstract = "We use an intertemporal model to examine the division of the eurozone area into countries with persistent trade account surpluses and those with persistent deficits. This is done by examining the trade account balances between a northern group of countries that are in persistent trade account surplus and a southern group of countries that have persistent deficits over the period 2001–2018. The theoretical model highlights the interaction of consumption, portfolio optimization between holdings of domestic and foreign bonds, fiscal balances, changes in the demand to hold money balances and changes in the pricing of risk in financial markets as reflected in changes in the interest rate differentials. We test the model using both the ARDL and Fully Modified OLS methodologies and find that it performs well empirically with relevant coefficients being both right signed and significant.",

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author = "Tjeerd Boonman and Ioannis Litsios and Keith Pilbeam and William Pouliot",

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AU - Pilbeam, Keith

AU - Pouliot, William

N1 - Funding Information: We are extremely grateful for comments on an earlier draft of this paper by participants at the October 2019, Jean Monnet Workshop on Current Account Imbalances in Brussels. We are especially grateful to the discussant Guiglielmo Maria Caporale for his many insightful comments. Thanks are also due to Joscha Beckmann and Ansgar Belke for their suggestions in relation to the empirical modelling. Finally, we are indebted to two anonymous referees for their helpful suggestions and insights. Publisher Copyright: © 2021 Elsevier Ltd

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Modelling the trade balance between the northern and southern eurozone using an intertemporal approach

Abstract

Bibliographical note

Keywords

ASJC Scopus subject areas

Access to Document

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Cite this