A sectoral net lending perspective on Europe

Glötzl, Florentin and Rezai, Armon (2016) A sectoral net lending perspective on Europe. Ecological Economic Papers, 12. WU Vienna University of Economics and Business, Vienna.


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The paper investigates net lending and net borrowing flows of the institutional sectors in Europe since the introduction of the Euro in 1999. Applying a simple statistical apparatus, this paper is novel in describing the sectoral behavior leading up to and during the crisis. We find that (1) many countries of the Northern group were characterized by low public deficits or even budget surpluses, current account surpluses and a private sector in a net lending position. In countries of the Southern periphery, in the Anglo-Saxon countries as well as in many Eastern European Economies private sector net borrowing coincided with a budget deficit and substantial current account deficits. (2) With the onset of the crisis private net lending soared in all countries while all governments incurred deficits, consistent with the notion of a balance sheet recession. (3) Private net lending is pro-cyclical, reinforcing the economic downturn, while public net lending is countercyclical in all countries. (4) Household net lending tends to lead the business cycle, while corporate net lending tends to lag it especially in the Northern group. (5) Prominent concepts asserting causal relationships in sectoral net lending, such as Ricardian equivalence and the twin deficit hypothesis are not supported by the data. (authors' abstract)

Item Type: Paper
Additional Information: Please take a look at the appendix to this paper: http://epub.wu.ac.at/id/eprint/5414 .
Keywords: net lending and net borrowing / Euro crisis / Ricardian equivalence / twin deficit / current account imbalances
Classification Codes: JEL E12, F34, F45
Divisions: Departments > Sozioökonomie > Ecological Economics
Depositing User: Daniel Schmelz
Date Deposited: 25 Jul 2016 12:20
Last Modified: 22 Oct 2019 00:41
FIDES Link: https://bach.wu.ac.at/d/research/results/78056/
URI: https://epub.wu.ac.at/id/eprint/5109


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