Current Accounts in a Currency Union

A fear about EMU was that in the absence of national currencies, country-specific shocks would result in greater current account divergences between member states. This paper finds that divergences across euro-area countries are smaller and have not risen relative to those across 13 other advanced economies with more flexible exchange rates. Also, the size of country-specific current account shocks in EMU countries is smaller and their persistence is greater than in the other advanced economies. However, these differences in current account dynamics do not appear related to different exchange rate dynamics.Economic models;External shocks;Real effective exchange rates;Regional shocks;current account, exchange rate, current accounts, real exchange rate, current account balance, current account shocks, exchange rates, current account balances, current account dynamics, exchange rate changes, effective exchange rate, real effective exchange rate, current account imbalances, exchange rate dynamics, exchange rate rigidity, real exchange rates, effective exchange rates, exchange rate regimes, exchange rate shocks, real exchange rate dynamics, flexible exchange rates, exchange rate regime, current account adjustment, real exchange rate changes, current account deficits, exchange rate mechanisms, exchange rate volatility, fluctuation margins, capital account, current account responses, bilateral exchange rates, flexible exchange rate regime, exchange rate systems, exchange rate movements, fixed exchange rate regimes, fixed exchange rate, capital account openness, exchange rate developments, flexible exchange rate, exchange rate flexibility, exchange rate crisis