Quotation Glötzl, Florentin. 2015. The role of Net Lending in the crisis and economic theory: A perspective of institutional sectors. 1st Vienna Conference on Pluralism in Economics, Wien, Österreich, 10.04-12.04..




The paper investigates the role of net lending and net borrowing flows of the institutional sectors in member countries of the European Union between 1999q1 and 2013q3. It is novel in (1) analyzing the Euro crisis using net lending data which guarantees that accounting identities are not violated, (2) investigating the business cycle behavior of net lending flows in Europe and (3) testing prominent economic theories such as Ricardian Equivalence, Twin Deficits or the Structural Gap Hypothesis empirically. First, the analysis of these flows' dynamics shows that external imbalances constitute a major reason for the Euro Crisis. These imbalances result from weak domestic demand in the core countries of the EU (especially Germany) and a credit-driven boom in the southern periphery. Second, a lead/lag analysis reveals that private net lending is pro-cyclical and that households tend to lead the cycle, while the counter-cyclicality of government net lending is mostly due to counter-cyclical government consumption i.e. automatic stabilizers, rather than public investment. Moreover, especially in countries which faced a current account deficit before the crisis the external sector seems to lead the cycle. Third, testing widely accepted economic theories for their empirical validity with a simple statistical apparatus lead to the conclusion that neither the Twin Deficit Hypothesis, nor Ricardian Equivalence or the concept of a Structural Gap fit the facts for EU countries. A traditional Keynesian analysis, regarding swings in private net lending as being causal for shifts in the public deficit, is better suited to explain the structural relationships between the institutional sectors.


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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Paper presented at an academic conference or symposium
Language English
Title The role of Net Lending in the crisis and economic theory: A perspective of institutional sectors
Event 1st Vienna Conference on Pluralism in Economics
Year 2015
Date 10.04-12.04.
Country Austria
Location Wien
URL http://conference.plurale-oekonomik.at/


Glötzl, Florentin (Former researcher)
Institute for Ecological Economics IN (Details)
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