11 This would lead to the conduct of a more aggressive (optimal) monetary policy in the presence of supply shocks. 12 Not surprisingly, this debate has triggered a series of empiried studies trying to shed more light on the issue. I will focus on evidence for the euro area.
While the US current account deficit has decreased by half and Japan’s has disappeared, the euro area has built up an increasing current account surplus, driven by a lasting incapacity to revive domestic demand. What all this points to is a need to rebalance the sources of global growth.