Essay on external imbalances within the Euro Area

A Work Project, presented as part of the requirements for the Award of a Masters Degree in Economics from the NOVA – School of Business and Economics

Current accounts of individual members of the Euro Area were not expected to dramatically diverge, however during the last decade they have sharply diverged as peripheral Member States are experiencing very high and unprecedented current account deficits. This paper tests the relationship in the medium and short run between the current account and i) Fiscal policy and ii) inward Foreign Direct Investment, two elements suggested as partial causes for the large external imbalances.