ECB paper models eurozone’s vulnerabilities

europe-iw

A working paper published by the European Central Bank presents an early warning model that quantifies the emergence of major imbalances in the eurozone.

In A macroeconomic vulnerability model for the euro area, David Sondermann and Nico Zorell note that growth in imbalances magnifies an economy’s vulnerability to adverse shocks, which in turn can lead to severe recessions.

The authors present a set of macroeconomic indicators that they say capture domestic and external macroeconomic

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