Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2014. The project is a required component of every master program.
Europe out of balance: an analysis of current accounts in Europe
Michel Carlo Nies
The European sovereign debt crisis should not only be seen as the simple failure to manage public finances, but also as the consequence of divergent balance of payment positions. This paper attempts to shed light on this line of argument by analysing empirically the determinants of current accounts. The principal conclusion is that divergent developments in labour costs and misallocation of capital are behind the developments that led to the sovereign debt crisis. Given these results, this paper also evaluates different policy measures designed to address the issue of diverging current accounts.
Read the full paper or view slides below: