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작성일 : 17.08.31 | 조회수 : 230

제목 : Adjustment of the Internal Imbalance in the Euro Area at Post-Crisis Era 글쓴이 : eu-center
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In February 2017, the paper on "Adjustment of the Internal Imbalance in the Euro Area at Post-Crisis Era: Development of Current Account Balance of Southern European Countries and Structural Analysis" by Professor KANG Yoo-Duk was published on the Journal of European Union Studies, vol. 45. 

This study pays attention to the fact that Southern European countries reduced their current account deficit in unprecedented manner during the period of 2011-2013 and examines these adjustment process. For this purpose, this study reviews the changes of trade balance in both supply(export) and demand side (import). In particular, it investigates changes of unit labour costs and export price in order to decide whether the internal devaluation has been effective in reducing the current account deficit. In addition, this paper decomposes the trade balance into structural and cyclical components and illustrates the contribution of each factor in the adjustment process.

The reduction of current account deficit in Greece, Spain and Portugal was driven in large part by a sharp fall in their import demand, which resulted from the deep economic recession. Their exports had been stagnating or increased slowly, forming J curve shape, during the first phase of the adjustment. The unit labour cost declined, but this fall in production cost was not necessarily reflected on the export price, which rose during the same period. It suggests that the mechanism of the internal devaluation does not fully explain the rise of export in second phase of the adjustment. The decomposition of trade balance shows that the cyclical component affected much the fall in trade deficit during the period of 2011-2013. This confirms once again the fact that the fall in current account deficit has been driven by the fall in import.

The internal devaluation process is very slow, because the wage and price are generally sticky and it cause a large contraction of domestic demand and political instability. In this context, it is necessary to note that the massive current account surplus of Germany is the other side of the internal imbalance. This argument suggests that the discussion about the internal imbalance is not only economic issues, but also political issues, which require closer coordination of economic policies within the Euro Area.

Reference Link: Adjustment of the Internal Imbalance in the Euro Area at Post-Crisis Era: Development of Current Account Balance of Southern European Countries and Structural Analysis

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