The Transfer Problem in the Euro Area

Building on the celebrated Keynes–Ohlin debate and on Lane and Milesi-Ferretti (Rev Econ Stat 86:841–857, 2004), the paper investigates the transfer problem for the Euro area vis-à-vis the rest of the world. The analysis is developed in a theoretically and statistically consistent way and is intended as a contribution to the empirical literature on EMU. The main result of the paper is that the accumulation of net foreign asset in the Euro area is consistent with real exchange appreciation, largely through the relative price of nontradables rather than through the terms of trade.