@TechReport{CEPII:2018-21,
author={Guillaume Gaulier and Vincent Vicard},
title={Some Unpleasant Euro Arithmetic},
year=2018,
month=,
institution={CEPII},
type={CEPII Policy Brief},
url={https://www.cepii.fr/CEPII/fr/publications/pb/abstract.asp?NoDoc=11000},
number={2018-21},
abstract={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.},
keywords={Current account imbalances ; Euro area ; Exchange rates misalignments}
}