Testing for external sustainability under a monetary integration process. Does the Lawson doctrine apply to Europe?
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Other documents of the author: Camarero, Mariam; Carrion-i-Silvestre, Josep Lluís; Tamarit, Cecilio
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comunitat-uji-handle2:10234/8643
comunitat-uji-handle3:10234/8644
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INVESTIGACIONMetadata
Title
Testing for external sustainability under a monetary integration process. Does the Lawson doctrine apply to Europe?Date
2015Publisher
ElsevierISSN
0264-9993Type
info:eu-repo/semantics/articlePublisher version
http://www.sciencedirect.com/science/article/pii/S0264999314002405Version
info:eu-repo/semantics/submittedVersionSubject
Abstract
Monetary integration, and more specifically, the creation of a monetary union in Europe,
raises new economic questions concerning its functioning and governance. In particular,
we focus on the implications of high ... [+]
Monetary integration, and more specifically, the creation of a monetary union in Europe,
raises new economic questions concerning its functioning and governance. In particular,
we focus on the implications of high and persistent current account deficits for the
economic performance of monetary union members in the medium term. Recent
literature has argued that conventional measures of external sustainability are
misleading because they omit the effects of capital variations on net foreign asset
positions due to, among others, stock or debt market crises. In this paper we revisit
external sustainability making use of the database developed by Lane and Milesi-Ferretti
(2007) that includes these “valuation effects”. The sample period studied covers from the
launching of the monetary integration process in Europe (the creation of the European
Snake in 1972) up to 2011. Our econometric methodology accounts for the increasing
cross-section dependence among EMU countries as well as for possible structural breaks
endogenously determined. The results point to the need of abrupt adjustments, either
led by the markets or promoted by pro-active policy measures, in order to offset external
disequilibria. These results would give support to the surveillance measures proposed
by the European Commission (2009, 2010a) and would reject the Lawson's doctrine of
“laissez-faire”. [-]
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Economic Modelling, 2015, vol. 44Rights
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