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Spain in the Euro: a general equilibrium analysis

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  • Javier Andrés

    ()

  • Samuel Hurtado

    ()

  • Eva Ortega

    ()

  • Carlos Thomas

    ()

Abstract

This paper analyzes the determinants of Spain's macroeconomic fluctuations since the inception of the euro in 1999, with a special attention to observed growth and inflation differentials with respect to the rest of the European Monetary Union (EMU). For that purpose we estimate the Banco de España DSGE model of the Spanish economy and the rest of the Eurosystem (BEMOD). We find that observed differentials are the result of a combination of asymmetric country-specific shocks (in particular, demand and productivity shocks for growth and cost-push shocks for inflation) as well as asymmetric economic structure (especially lower nominal wage and price rigidities in Spain). Finally, we find that EMU membership has had a non-negligible effect on observed differentials.

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Bibliographic Info

Article provided by Spanish Economic Association in its journal SERIEs.

Volume (Year): 1 (2010)
Issue (Month): 1 (March)
Pages: 67-95

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Handle: RePEc:spr:series:v:1:y:2010:i:1:p:67-95

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Keywords: DSGE model; Monetary union; Growth and inflation differentials; Bayesian inference; C11; C51; E17;

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References

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  1. Burriel, Pablo & Fernández-Villaverde, Jesús & Rubio-Ramirez, Juan Francisco, 2009. "MEDEA: A DSGE Model for the Spanish Economy," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7297, C.E.P.R. Discussion Papers.
  2. Stephanie Schmitt-Grohe & Martin Uribe, 2002. "Closing Small Open Economy Models," NBER Working Papers 9270, National Bureau of Economic Research, Inc.
  3. Christoffel, Kai & Coenen, Günter & Warne, Anders, 2008. "The New Area-Wide Model of the euro area: a micro-founded open-economy model for forecasting and policy analysis," Working Paper Series, European Central Bank 0944, European Central Bank.
  4. Du Caju, Philip & Gautier, Erwan & Momferatou, Daphne & Ward-Warmedinger, Melanie, 2008. "Institutional features of wage bargaining in 23 European countries, the US and Japan," Working Paper Series, European Central Bank 0974, European Central Bank.
  5. Frank Smets & Raf Wouters, 2002. "An estimated dynamic stochastic general equilibrium model of the euro area," Working Paper Research, National Bank of Belgium 35, National Bank of Belgium.
  6. M. Druant & S. Fabiani & Gabor Kezdi & Ana Lamo & Fernando Martins & R. Sabbatini, 2009. "How are Firms’ Wages and Prices Linked: Survey Evidence in Europe," Working Papers, Banco de Portugal, Economics and Research Department w200918, Banco de Portugal, Economics and Research Department.
  7. Erceg, Christopher J. & Henderson, Dale W. & Levin, Andrew T., 2000. "Optimal monetary policy with staggered wage and price contracts," Journal of Monetary Economics, Elsevier, Elsevier, vol. 46(2), pages 281-313, October.
  8. Luis J. Álvarez & Samuel Hurtado & Isabel Sánchez & Carlos Thomas, 2009. "The impact of oil price changes on Spanish and euro area consumer price inflation," Banco de Espa�a Occasional Papers 0904, Banco de Espa�a.
  9. Oriol Aspachs-Bracons & Pau Rabanal, 2010. "The drivers of housing cycles in Spain," SERIEs, Spanish Economic Association, Spanish Economic Association, vol. 1(1), pages 101-130, March.
  10. Javier Andrés & Pablo Burriel & Ángel Estrada, 2006. "BEMOD: a DSGE model for the Spanish economy and the rest of the Euro area," Banco de Espa�a Working Papers 0631, Banco de Espa�a.
  11. Emmanuel Dhyne & Luis J. Alvarez & Herve Le Bihan & Giovanni Veronese & Daniel Dias & Johannes Hoffmann & Nicole Jonker & Patrick Lunnemann & Fabio Rumler & Jouko Vilmunen, 2006. "Price Changes in the Euro Area and the United States: Some Facts from Individual Consumer Price Data," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 20(2), pages 171-192, Spring.
  12. Adolfson, Malin & Laseen, Stefan & Linde, Jesper & Villani, Mattias, 2007. "Bayesian estimation of an open economy DSGE model with incomplete pass-through," Journal of International Economics, Elsevier, Elsevier, vol. 72(2), pages 481-511, July.
  13. Alvarez, Luis J. & Hernando, Ignacio, 2006. "Price setting behaviour in Spain: Evidence from consumer price micro-data," Economic Modelling, Elsevier, Elsevier, vol. 23(4), pages 699-716, July.
  14. Pau Rabanal, 2009. "Inflation Differentials between Spain and the EMU: A DSGE Perspective," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 41(6), pages 1141-1166, 09.
  15. Tovar, Camilo Ernesto, 2009. "DSGE Models and Central Banks," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 3(16), pages 1-31.
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Citations

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Cited by:
  1. Vogel, Lukas, 2012. "Structural reforms, fiscal consolidation and external rebalancing in monetary union: A model-based analysis," Economic Modelling, Elsevier, Elsevier, vol. 29(4), pages 1286-1298.
  2. Álvarez, Luis J. & Hurtado, Samuel & Sánchez, Isabel & Thomas, Carlos, 2011. "The impact of oil price changes on Spanish and euro area consumer price inflation," Economic Modelling, Elsevier, Elsevier, vol. 28(1-2), pages 422-431, January.
  3. Schwarzmüller, Tim & Stähler, Nikolai, 2011. "Reforming the labor market and improving competitiveness: An analysis for Spain using FiMod," Discussion Paper Series 1: Economic Studies 2011,28, Deutsche Bundesbank, Research Centre.
  4. Samuel Hurtado & Elena Fernández & Eva Ortega & Alberto Urtasun, 2011. "Nueva actualización del modelo trimestral del Banco de España," Banco de Espa�a Occasional Papers 1106, Banco de Espa�a.
  5. Benkovskis, Konstantins & Caivano, Michele & D’Agostino, Antonello & Dieppe, Alistair & Hurtado, Samuel & Karlsson, Tohmas & Ortega, Eva & Várnai, Tímea, 2011. "Assessing the sensitivity of inflation to economic activity," Working Paper Series, European Central Bank 1357, European Central Bank.
  6. Bleich, Dirk & Fendel, Ralf, 2012. "Monetary Policy Conditions in Spain Before and After the Changeover to the Euro: A Taylor Rule Based Assessment," Review of Applied Economics, Review of Applied Economics, Review of Applied Economics, vol. 8(1).
  7. Martín-Moreno, José M. & Pérez, Rafaela & Ruiz, Jesús, 2014. "A real business cycle model with tradable and non-tradable goods for the Spanish economy," Economic Modelling, Elsevier, Elsevier, vol. 36(C), pages 204-212.

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