External imbalances and recoveries
- Mariam Camarero 1
- María Dolores Gadea-Rivas 2
- Ana Gómez-Loscos 3
- Cecilio Tamarit 4
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1
Universitat Jaume I
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2
Universidad de Zaragoza
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3
Banco de España
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4
Universitat de València
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ISSN: 0213-2710
Year of publication: 2020
Issue: 12
Pages: 1-55
Type: Working paper
More publications in: Documentos de trabajo - Banco de España
Abstract
A decade after the beginning of the Great Recession, fl ow external imbalances, measured by the current account (CA) have narrowed markedly. However, stock or net foreign assets (NFA) imbalances have kept increasing and have created challenges for future macroeconomic and fi nancial stability. To date, early warning systems (scoreboards) have focused more on fl ow than on the stock variables. To approach this problem, in this paper we analyze expansions using two complementary sets of indicators proposed by Harding and Pagan (2002) and Gadea et al. (2017). After controlling for a large set of explanatory variables, we fi nd that the effect of CA imbalances is limited, except when the measures selected take into account past CA developments or some degree of persistence. In contrast, the evolution of NFA seems to be much more explanatory of the time it takes to regain the level of output previous to the recession, as well as the amplitude and the cumulation of the recoveries. Therefore, we conclude that future macro-prudential policies should pay more attention to stock variables to measure external imbalances due to their effects on the characteristics of recoveries