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Chapter 2: Macroeonomic adjustment in the euro area – the cases of Ireland and Italy

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  • Lars Calmfors
  • Giancarlo Corsetti
  • Michael P. Devereux
  • Seppo Honkapohja
  • Gilles Saint-Paul
  • Hans-Werner Sinn
  • Jan-Egbert Sturm
  • Xavier Vives

Abstract

This chapter analyses macroeconomic adjustment within the euro area. The focus is on the adjustment problems in Ireland (which has had a booming economy) and Italy (which has instead been exposed to strong contractionary shocks). The analysis stresses how adjustment processes may be much more complex than was believed earlier. One reason is asset price dynamics. Another is that supply- side adjustment mechanisms, such as labour migration, may also have demand effects. A key conclusion is that deregulations that enhance productivity growth may be a key adjustment mechanism in the medium term for a country – like Italy – that needs to improve its competitiveness.

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Bibliographic Info

Article provided by CESifo Group Munich in its journal EEAG Report on the European Economy.

Volume (Year): (2007)
Issue (Month): (02)
Pages: 59-72

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Handle: RePEc:ces:eeagre:v::y:2007:i::p:59-72

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  1. Maurice Obstfeld & Kenneth Rogoff, 2002. "Global Implications Of Self-Oriented National Monetary Rules," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 503-535, May.
  2. Giancarlo Corsetti & Luca Dedola & Sylvain Leduc, 2008. "Productivity, External Balance, and Exchange Rates: Evidence on the Transmission Mechanism among G7 Countries," NBER Chapters, in: NBER International Seminar on Macroeconomics 2006, pages 117-194 National Bureau of Economic Research, Inc.
  3. Pedro Teles & Isabel Correia & Bernardino Adao, 2007. "On the Relevance of Exchange Rate Regimes for Stabilization Policy," 2007 Meeting Papers 616, Society for Economic Dynamics.
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  8. Calmfors, Lars, 1998. "Macroeconomic Policy, Wage Setting and Employment - What Difference Does the EMU Make?," Seminar Papers 657, Stockholm University, Institute for International Economic Studies.
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  11. Barrett, Alan & McCarthy, Yvonne, 2006. "Immigrants in a Booming Economy: Analysing their Earnings and Welfare Dependence," IZA Discussion Papers 2457, Institute for the Study of Labor (IZA).
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  15. Corsetti, Giancarlo, 2006. "Openness and the Case for Flexible Exchange Rates," CEPR Discussion Papers 5612, C.E.P.R. Discussion Papers.
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  17. Roche, Maurice, 2003. "Will there be a Crash in Irish House Prices?," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI), vol. 2003(4-Winter), pages 1-16.
  18. Lars Calmfors & Asa Johansson, 2004. "Unemployment Benefits, Contract Length and Nominal Wage Flexibility," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(1), pages 23-44, 03.
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  20. Broda, Christian, 2006. "Exchange rate regimes and national price levels," Journal of International Economics, Elsevier, vol. 70(1), pages 52-81, September.
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