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Structural reforms and macroeconomic performance in the euro area countries: a model-based assessment

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  • Sandra Gomes

    ()
    (Bank of Portugal)

  • Pascal Jacquinot

    ()
    (European Central Bank)

  • Matthias Mohr

    ()
    (European Central Bank)

  • Massimiliano Pisani

    ()
    (Bank of Italy)

Abstract

We quantitatively assess the macroeconomic effects of country-specific supply-side reforms in the euro area by simulating EAGLE, a multi-country dynamic general equilibrium model. We consider reforms in the labor and services markets of Germany (or, alternatively, Portugal) and the rest of the euro area. Our main results are as follows. First, a unilateral markup reduction by 15 percentage points in the German (Portuguese) labor and services market would induce an increase in the long-run German (Portuguese) output equal to 8.8 (7.8) percent. Second, cross-country coordination of reforms would add extra benefits to each region, by limiting the deterioration of relative prices and purchasing power that a country faces when implementing reforms unilaterally. In the long run German (Portuguese) output would increase by 9.2 (8.6) percent. Third, cross-country coordination would make the macroeconomic performance of the different regions more homogeneous, in terms of price competitiveness and real activity. Overall, our results suggest that while reforms implemented individually by each country in the euro area will produce positive effects, cross-country coordination produces larger and more evenly distributed (positive) effects.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 830.

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Date of creation: Oct 2011
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Handle: RePEc:bdi:wptemi:td_830_11

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Web page: http://www.bancaditalia.it
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Keywords: economic policy; structural reforms; dynamic general equilibrium modeling; competition; markups.;

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References

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Citations

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Cited by:
  1. Barbara Annicchiarico & Fabio Di Dio & Francesco Felici, 2012. "Structural Reforms and the Potential Effects on the Italian Economy," CEIS Research Paper 227, Tor Vergata University, CEIS, revised 29 Mar 2012.
  2. Sandra Gomes & P. Jacquinot & M. Pisani, 2010. "The EAGLE. A model for policy analysis of macroeconomic interdependence in the euro area," Working Papers w201006, Banco de Portugal, Economics and Research Department.
  3. Angelini, Elena & Dieppe, Alistair & Pierluigi, Beatrice, 2013. "Learning about wage and price mark-ups in euro area countries," Working Paper Series 1512, European Central Bank.
  4. Busl, Claudia & Seymen, Atılım, 2013. "The German labour market reforms in a European context: A DSGE analysis," ZEW Discussion Papers 13-097, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  5. In 'T Veld, Jan & Kollmann, Robert & Ratto, Marco & Roeger, Werner & Vogel, Lukas, 2014. "What drives the German current account? And how does it affect other EU member states?," CEPR Discussion Papers 9933, C.E.P.R. Discussion Papers.
  6. Romain Bouis & Orsetta Causa & Lilas Demmou & Romain Duval, 2012. "How quickly does structural reform pay off? An empirical analysis of the short-term effects of unemployment benefit reform," IZA Journal of Labor Policy, Springer, vol. 1(1), pages 1-12, December.
  7. Bruno Albuquerque & Cristina Manteu, 2012. "On International Policy Coordination and the Correction of Global Imbalances," Working Papers w201214, Banco de Portugal, Economics and Research Department.
  8. Bergljot Barkbu & Jesmin Rahman & Rodrigo O. Valdés, 2012. "Fostering Growth in Europe Now," IMF Staff Discussion Notes 12/07, International Monetary Fund.
  9. Poilly, Céline & Wesselbaum, Dennis, 2014. "Evaluating labor market reforms: A normative analysis," Journal of Macroeconomics, Elsevier, vol. 39(PA), pages 156-170.
  10. A team of the Working Group on Econometric Modelling of the European System of Central Banks, 2012. "Competitiveness and external imbalances within the euro area," Occasional Paper Series 139, European Central Bank.

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