Guillaume Gaulier & Vincent Vicard , 2018.
"Some Unpleasant Euro Arithmetic,"
CEPII Policy Brief 2018- 21 ,  2018 , CEPII.
Current estimates of misalignments in real effective exchange rates show that euro area imbalances are still large: Germany exhibits a 20 percentage point undervaluation compared to the rest of the euro area (EA). Within a monetary union, rebalancing requires price adjustments through differentials in inflation rates. The rebalancing process therefore involves a 2 percentage point higher inflation in Germany than in the rest of the EA over a decade, or a 1 pp over two decades. It also requires above 2% inflation in surplus countries to meet the 2% ECB inflation target. At the current pace, rebalancing is a 20 year process and requires sustained very low inflation rates in the rest of the euro area.
Current account imbalances ; Euro area ; Exchange rates misalignments