explaining trade imbalances in the euro area: liquidity preference and the role of finance

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ID: 174065
2017
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Abstract
Extant literature nearly exclusively explains the current account imbalances in the euro area by blaming wage policy. Mainstream economics considers wage policy as responsible for both trade imbalances and the split between debtor and creditor countries. In contrast, this article argues that cross-border capital flows come first, and affect aggregate demand and production costs. Trade flows and the real exchange rate adjust to financial flows. The rationale of this reversed argument is Keynes’ liquidity theory of interest. The policy implications drawn from the argument point in the direction of more capital controls rather than controls on wage formation. JEL Classification: E12; E43; F36
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gabrisch2017pslexplaining Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors ;Hubert Gabrisch
Journal Journal of environmental quality
Year 2017
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