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Globalisation and the euro area - simulation based analysis using the New Area Wide Model

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Author Info
Pascal Jacquinot () (Directorate General Research, Econometric Modelling, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
Roland Straub () (Directorate General International and European Relations, International Policy Analysis, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
Abstract

In this paper, we utilise the multi-country version of the NAWM to analyse the impact of globalisation on euro area macroeconomic aggregates. We provide alternative modelbased definitions of globalisation associated with an increase in potential output in emerging Asia and its impact on total factor productivity in the euro area, and a shift in international specialisation patterns leading to changes in relative demand and import substitutions. The results indicate that globalisation has a positive impact on output, consumption, investment and real labour income in the long-run. This impact is driven by the improvement in the terms of trade and associated positive wealth effects, as well as by spillovers of higher potential output in emerging Asia on euro area total factor productivity. Additionally, we provide evidence that structural reforms in goods and labour markets would amplify the benefits associated with globalisation. JEL Classification: E32, E62.

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Paper provided by European Central Bank in its series Working Paper Series with number 907.

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Length: 41 pages
Date of creation: Jun 2008
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Handle: RePEc:ecb:ecbwps:20080907

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Related research
Keywords: DSGE modelling; globalisation; euro area.;

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  1. Chen, Natalie & Imbs, Jean & Scott, Andrew, 2004. "Competition, Globalization and the Decline of Inflation," CEPR Discussion Papers 4695, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Günter Coenen & Roland Straub, 2005. "Does Government Spending Crowd in Private Consumption? Theory and Empirical Evidence for the Euro Area," International Finance, Blackwell Publishing, vol. 8(3), pages 435-470, December. [Downloadable!] (restricted)
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  3. Paul A. Samuelson, 2004. "Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization," Journal of Economic Perspectives, American Economic Association, vol. 18(3), pages 135-146, Summer. [Downloadable!] (restricted)
  4. Tamim Bayoumi & Douglas Laxton & Paolo Pesenti, 2004. "Benefits and spillovers of greater competition in Europe: a macroeconomic assessment," Staff Reports 182, Federal Reserve Bank of New York. [Downloadable!]
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  5. Kenneth S. Rogoff, 2003. "Globalization and global disinflation," Proceedings, Federal Reserve Bank of Kansas City, pages 77-112. [Downloadable!]
  6. Günter Coenen & Peter McAdam & Roland Straub, 2007. "Tax reform and labour-market performance in the euro area - a simulation-based analysis using the New Area-Wide Model," Working Paper Series 747, European Central Bank. [Downloadable!]
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  7. Kenneth Rogoff, 2003. "Globalization and global disinflation," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 45-78. [Downloadable!]
  8. Christopher J. Erceg & Luca Guerrieri & Christopher Gust, 2006. "SIGMA: a new open economy model for policy analysis," International Finance Discussion Papers 835, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  9. Argia M. Sbordone, 2008. "Globalization and inflation dynamics: the impact of increased competition," Staff Reports 324, Federal Reserve Bank of New York. [Downloadable!]
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  10. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
    Other versions:
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