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Can structural reforms help Europe?

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  • Gauti Eggertsson
  • Andrea Ferrero
  • Andrea Raffo

Abstract

Structural reforms that increase competition in product and labor markets are often indicated as the main policy option available for peripheral Europe to regain competitiveness and boost output. We show that, in a crisis that pushes the nominal interest rate to its lower bound, these reforms do not support economic activity in the short run, and may well be contractionary. Absent the appropriate monetary stimulus, reforms fuel expectations of prolonged deation, increase the real interest rate, and depress aggregate demand. Our findings carry important implications for the current debate on the timing and the design of structural reforms in Europe.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 1092.

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Date of creation: 2013
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Handle: RePEc:fip:fedgif:1092

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  1. La dérégulation du marché du travail est-elle une solution au chômage ?
    by ? in D'un champ l'autre on 2014-04-26 13:10:00
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Cited by:
  1. Philip R. Lane, 2013. "Growth And Adjustment Challenges For The Euro Area," The Economic and Social Review, Economic and Social Studies, vol. 44(2), pages 273-295.
  2. Elton Beqiraj & Massimiliano Tancioni, . "Evaluating Labor Market Targeted Fiscal Policies in High Unemployment EZ Countries," Working Papers 165, University of Rome La Sapienza, Department of Public Economics.
  3. Jordi Galí & Tommaso Monacelli, 2013. "Understanding the Gains from Wage Flexibility: The Exchange Rate Connection," Working Papers 746, Barcelona Graduate School of Economics.
  4. Sandra Gomes, 2014. "Euro area structural reforms in times of a global crisis," Working Papers w201408, Banco de Portugal, Economics and Research Department.
  5. Gustav A. Horn & Alexander Herzog-Stein & Ansgar Rannenberg & Katja Rietzler & Silke Tober & Rudolf Zwiener, 2014. "Wirtschaftspolitische Herausforderungen 2014," IMK Report 90-2014, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  6. Jordi Galí & Tommaso Monacelli, 2013. "Understanding the gains from wage flexibility: The exchange rate connection," Economics Working Papers 1408, Department of Economics and Business, Universitat Pompeu Fabra.

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