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1. Current Account Balances’ Divergence in the Euro Area: an Appraisal of the Underlying Forces

Author:
Emmanuelle Faure, Carl Grekou, and Valérie Mignon
Publication Date:
12-2022
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
This paper revisits the crucial issue of current account imbalances and focuses on the determinants of their gaps between eurozone Member States. We conduct robust estimations of the current account balances for a panel of ten founding euro area economies and construct a measure that allows us to diagnose why some countries have started to diverge from the eurozone mean in the last two decades. Our findings show evidence of remaining differences in countries’ economic development, meaning that real macroeconomic convergence has failed in the zone. Price and cost competitiveness, as well as fiscal balances, have also participated in this growing macroeconomic divergence. Overall, while the European authorities cannot influence the part of the current account gaps due to demographic factors, the role of fiscal redistribution and investment at the euro area level could help achieve macroeconomic convergence and thus reduce current accounts’ divergence in the zone.
Topic:
Economics, Regional Cooperation, European Union, Eurozone, and Regionalism
Political Geography:
Europe

2. On the economic desirability of the West African monetary union: would one currency fit all?

Author:
Cécile Couharde, Carl Grekou, and Valérie Mignon
Publication Date:
02-2021
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
In this paper, we investigate from a policy coordination viewpoint the desirability of the West African monetary union project, ECO. Our approach is built around the inclusion of national objectives in the regional integration perspective. Thanks to cluster analysis, we identify two groups of countries with relatively homogenous sustainable exchange rate paths in West Africa. We also find that no single currency peg nor a freely floating exchange rate regime would be preferable for any of the countries or groups of economies. Overall, our findings argue in favor of two ECOs —at least in a first step, i.e., one for each of the two identified zones. Each ECO would serve as a virtual anchor —with some flexibility— for the considered group, and would be determined by a basket of currencies mainly composed of euro and US dollar.
Topic:
Economics, International Political Economy, Monetary Policy, and Currency
Political Geography:
West Africa

3. MULTIPRIL: a new database on multilateral price levels and currency misalignments

Author:
Cécile Couharde, Carl Grekou, and Valérie Mignon
Publication Date:
10-2020
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
This paper describes the new CEPII-MULTIPRIL database on Multilateral Price Levels (MPL) introduced in 2020. The MULTIPRIL database covers a wide sample of 178 countries over the 1990-2018 period, and includes relative price level series computed vis-à-vis two sets of trading partners (177 and the top 30) according to three different trade-weighting schemes. It also contains MPL-based currency misalignments series for 156 countries over the 1991-2018 period. MULTIPRIL offers the potential to improve the coverage and quality of worldwide price-competitiveness comparisons. By focusing on price level data, it usefully complements the EQCHANGE database on equilibrium exchange rates and currency misalignments derived from series in indices. Its multilateral setting provides a more comprehensive picture of relative price levels and currency misalignments compared to existing bilateral measures.
Topic:
Economics, International Political Economy, Exchange Rate Policy, Trade, Database, and Price
Political Geography:
Global Focus

4. Currency Misalignments and Exchange Rate Regimes in Latin American countries: A Trade-Off issue

Author:
Jorge Carrera, Blaise Gnimassoun, Valérie Mignon, and Romain Restout
Publication Date:
04-2020
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
This paper conducts an in-depth empirical investigation on the impact of the exchange rate regime (ERR) on real currency misalignments in a panel of 17 Latin American countries over the 1970-2016 period. We consider explicitly the two dimensions of misalignments, size and persistence, and evaluate four different ERR classifications. We also pay attention to cross-sectional dependencies across countries that appear to be important in Latin America, and provide several robustness checks. Our main findings show that, although fixed ERR perform well in limiting the size of misalignments – and in reducing inflation and fiscal deficit – the disequilibria are more persistent. On the contrary, allowing for more flexibility reduces persistence but increases the size of misalignments. Overall, we show that Latin American countries face a crucial trade-off when they have to choose their ERR.
Topic:
Economics, International Political Economy, Exchange Rate Policy, and Currency
Political Geography:
Latin America

5. Exchange rate pass-through to import prices: Accounting for changes in the Eurozone trade structure

Author:
Valérie Mignon and Antonia Lopez-Villavicencio
Publication Date:
06-2019
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
This paper assesses whether the emergence of new trading partners (i.e., China and Eastern Europe) as suppliers reduces the exchange rate pass-through (ERPT) in Eurozone countries which differ regarding their external exposure. Using bilateral data on import prices at the two-digit sector level, we find that (i) pass-through is complete in many cases, (ii) ERPT from China is higher than from the United States, and (iii) there is no compelling evidence of a generalized link between ERPT and the increasing integration of some emerging markets in European imports. We also show that the launch of the single currency has not provoked a sufficient change in the part of trade exposed to exchange rate fluctuations and, therefore, has not affected the pass-through. Overall, the trend of liberalization in new players' markets has not altered the competitive environment such as to induce exporters of other countries to absorb exchange rate depreciations.
Topic:
Economics, International Political Economy, International Trade and Finance, Exchange Rate Policy, Eurozone, Trade, and Imports
Political Geography:
China, Europe, and Eastern Europe

6. Heterogeneity within the Euro Area: New Insights into an Old Story

Author:
Virginie Coudert, Cécile Couharde, Carl Grekou, and Valérie Mignon
Publication Date:
03-2019
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
We assess cross-country heterogeneity within the eurozone and its evolution over time by measuring the distances between the equilibrium exchange rates’ paths of member countries. These equilibrium paths are derived from the minimization of currency misalignments, by matching real exchange rates with their economic fundamentals. Using cluster and factor analyses, we identify two distinct groups of countries in the run-up to the European Monetary Union (EMU), Greece being clearly an outlier at that time. Comparing the results with more recent periods, we find evidence of rising dissimilarities between these two sets of countries, as well as within the groups themselves. Overall, our findings illustrate the building-up of macroeconomic imbalances within the eurozone before the 2008 crisis and the fragmentation between its member countries that followed.
Topic:
Economics, International Political Economy, Monetary Policy, and European Monetary Union
Political Geography:
Europe