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Discussion Paper Deutsche Bundesbank No 49/2013 Current account adjustment in EU countries: Does euro-area membership make a difference? Sabine Herrmann Axel Jochem Discussion Papers represent the authors‘ personal opinions and do not necessarily reflect the views of the Deutsche Bundesbank or its staff. Editorial Board: Klaus Düllmann Heinz Herrmann Mathias Hoffmann Christoph Memmel Deutsche Bundesbank, Wilhelm-Epstein-Straße 14, 60431 Frankfurt am Main, Postfach 10 06 02, 60006 Frankfurt am Main Tel +49 69 9566-0 Please address all orders in writing to: Deutsche Bundesbank, Press and Public Relations Division, at the above address or via fax +49 69 9566-3077 Internet http://www.bundesbank.de Reproduction permitted only if source is stated. ISBN 978–3–86558– 9 86– 6 (Printversion) ISBN 978–3–86558– 9 87– 3 (Internetversion) Non-technical summary In the pre-crisis period, substantial current account imbalances showed up in euro- area member countries. Large deficits in some catch-up countries as well as large surpluses in more developed core countries of the euro area proved to be quite persistent, ie it was only after the euro area was hit by the sovereign debt crisis and severe balance of payments problems that major corrections in the current account imbalances occurred. From a theoretical point of view, there is some evidence that in countries joining a monetary union the current account adjustment mechanism is, indeed, slower and more delayed compared to economies that belong to other exchange rate regimes, as the single monetary policy goes hand in hand with strong interest rate convergence. This paper evaluates current account dynamics in countries with different exchange rate regimes by explicitly differentiating between c