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Spain in the euro: a general equilibrium analysis

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  • Javier Andrés

    ()
    (Universidad de Valencia)

  • Samuel Hurtado

    ()
    (Banco de España)

  • Eva Ortega

    ()
    (Banco de España)

  • Carlos Thomas

    ()
    (Banco de España)

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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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/09/Fic/dt0927e.pdf
File Function: First version, December 2009
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Bibliographic Info

Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0927.

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Length: 47 pages
Date of creation: Dec 2009
Date of revision:
Handle: RePEc:bde:wpaper:0927

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Keywords: DSGE model; monetary union; growth and inflation differentials; Bayesian inference;

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References

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  1. Martine Druant & Silvia Fabiani & Gabor Kezdi & Ana Lamo & Fernando Martins & Roberto Sabbatini, 2009. "How are firms’ wages and prices linked : survey evidence in Europe," Working Paper Research, National Bank of Belgium 174, National Bank of Belgium.
  2. Du Caju, Philip & Gautier, Erwan & Momferatou, Daphne & Ward-Warmedinger, Melanie E., 2008. "Institutional Features of Wage Bargaining in 23 European Countries, the US and Japan," IZA Discussion Papers 3867, Institute for the Study of Labor (IZA).
  3. 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.
  4. Schmitt-Grohé, Stephanie & Uribe, Martín, 2002. "Closing Small Open Economy Models," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3096, C.E.P.R. Discussion Papers.
  5. 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.
  6. 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.
  7. Andrew Levin & Christopher J. Erceg & Dale W. Henderson, 1999. "Optimal Monetary Policy with Staggered Wage and Price Contracts," Computing in Economics and Finance 1999, Society for Computational Economics 1151, Society for Computational Economics.
  8. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, MIT Press, vol. 1(5), pages 1123-1175, 09.
  9. 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.
  10. Pau Rabanal & Oriol Aspachs-Bracons, 2009. "The Drivers of Housing Cycles in Spain," IMF Working Papers 09/203, International Monetary Fund.
  11. 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.
  12. 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.
  13. Adolfson, Malin & Laséen, Stefan & Lindé, Jesper & Villani, Mattias, 2005. "Bayesian Estimation of an Open Economy DSGE Model with Incomplete Pass-Through," Working Paper Series 179, Sveriges Riksbank (Central Bank of Sweden).
  14. 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, Banco de Espa�a 0631, Banco de Espa�a.
  15. 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.
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Cited by:
  1. 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.
  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), pages 422-431.
  3. 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.
  4. 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).
  5. 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.
  6. Tim Schwarzmüller & Nikolai Stähler, 2013. "Reforming the labor market and improving competitiveness: an analysis for Spain using FiMod," SERIEs, Spanish Economic Association, Spanish Economic Association, vol. 4(4), pages 437-471, November.
  7. 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.

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