A ‘sudden stop’ to (private) capital inflows is usually very disruptive to an economy because it forces an almost immediate reversal in the current account unless the country in question receives substantial balance of payments assistance. The analysis presented in this paper starts from the...

International Macroeconomics has long sought an explanation for current account fluctuations that matches the data. The approaches have typically focused on better models and new macroeconomic variables. We demonstrate the limitations of this approach by showing that idiosyncratic shocks are an...

Global and European trade balances have seen strong divergences combined with strong movements in the exchange rate. Trade balances and real effective exchange rates are related. Using different measures of the real effective exchange rate, we show that this long-run link hinges on the relative...

In 2007, countries in the euro periphery were enjoying stable growth, low deficits and low spreads. Then the financial crisis erupted and pushed them into deep recession, raising their deficits and debt levels. By 2010, they were facing severe debt problems. Spreads increased and, surprisingly,...

We investigate the behaviour of gross capital flows and net capital flows for euro area member countries. We highlight the extraordinary boom-bust cycles in both gross flows and net flows since 2003. We also show that the reversal in net capital flows during the crisis has been very costly in...

In a demand system with conventional CES preferences, the price elasticitites of aggregate trade flows are weighted averages of sector-specific elasticities of substitution. We describe a methodology that can be used to estimate country-specific values for the price elasticities of aggregate...

Based on a new database of bilateral financial flows among euro area countries and their major world partners, this paper explores the role of financial links in the accumulation and then adjustment of current account imbalances in the euro area. The data show that the geography of financial...

Global imbalances and financial market (de)regulation both feature prominently among the potential causes of the global financial crisis, but they have been generally discussed separately. In this paper, we take a different angle and investigate the relationship between financial market...

This paper explores the anatomy of the boom, deep depression and recovery in the Finnish and Swedish economies in the period 1985-2000. These fifteen years are divided into three phases: (1) financial liberalization and the boom and the overheating of 1985-90, (2) the outbreak and spread of the...