Type: Working Paper
Current account imbalances, household consumption and debt in the euro area : a tale of two financial liberalizations
Working Paper, EUI RSCAS, 2018/15
MARZINOTTO, Benedicta, Current account imbalances, household consumption and debt in the euro area : a tale of two financial liberalizations, EUI RSCAS, 2018/15 - http://hdl.handle.net/1814/52604
Retrieved from Cadmus, EUI Research Repository
This paper explores the extent to which financial liberalization in the euro area had a differentiated impact on members’ private consumption patterns and in turn on their current account positions as a function of who got indebted in the first place. Theoretically, it builds on an inter-temporal consumption model augmented with household heterogeneity. Low/middle income groups are impatient and credit-constrained, whilst high-income groups are patient and under no constraint. Increased access to credit in previously financially repressed countries implies a relaxation of collateral constraints specifically for low-income groups, who differently from high-income agents borrow to finance current consumption. It follows that financial liberalization is associated with deteriorating external positions there where initial levels of financial openness and inclusion are lowest and the share of the low/middle-income group largest.
Cadmus permanent link: http://hdl.handle.net/1814/52604
Series/Number: EUI RSCAS; 2018/15