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

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Author Info

  • 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. 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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  3. Corsetti, Giancarlo, 2006. "Openness and the case for flexible exchange rates," Research in Economics, Elsevier, vol. 60(1), pages 1-21, March.
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  8. 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.
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  11. 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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  13. Duarte, Margarida & Obstfeld, Maurice, 2008. "Monetary policy in the open economy revisited: The case for exchange-rate flexibility restored," Journal of International Money and Finance, Elsevier, vol. 27(6), pages 949-957, October.
  14. Ichino, Andrea & Riphahn, Regina, 2003. "The Effect of Employment Protection on Worker Effort: A Comparison of Absenteeism During and After Probation," CEPR Discussion Papers 3847, C.E.P.R. Discussion Papers.
  15. Michael B. Devereux & Charles Engel, 2000. "Monetary Policy in the Open Economy Revisited: Price Setting and Exchange Rate Flexibility," Working Papers 042000, Hong Kong Institute for Monetary Research.
  16. Benigno, Pierpaolo, 2004. "Optimal monetary policy in a currency area," Journal of International Economics, Elsevier, vol. 63(2), pages 293-320, July.
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  18. Frankel, Jeffrey A & Rose, Andrew K, 1996. "The Endogeneity of the Optimum Currency Area Criteria," CEPR Discussion Papers 1473, C.E.P.R. Discussion Papers.
  19. 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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