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Unbundling the Great European Recession (2009-2013): Unemployment, Consumption, Investment, Inflation and Current Account

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  • Campiglio, Luigi Pierfranco

Abstract

The aim of the paper is to unbundle the main economic variables involved in the European Crisis and clarify their reciprocal relationship. The variable considered are: unemployment, inflation, consumptions, investments and current accounts. We use annual, quarterly and monthly data, until 2012, mid-2013 or an estimate of 2013 for the main European countries. The main results are the following: a) we show an emerging European economic divide, b) we detect a quasi-Okun relationship between investment and unemployment, c) we show the revival of the Phillips curve, especially in Germany, d) we test for the relationship between unemployment and the Government deficit, e) we show the existence of a relationship between unemployment and current account, f) we show how countries with high unemployment rate could bear the burden, g) we unbundle the unemployment-current account relationship, showing first the relationship between unemployment and final consumption, h) and then between final consumption, imports and corrent account, i) we show why a stable and growing inflation differential is not sustainable, but argue that internal devalution is not an effective policy, pushing inflation rates to a worrisome lower level and even outright deflation, l) we argue and show how to implement a more effective policy looking to the inflation differentials of specific products, looking to the case of Italy, m) we analyze the trade relationship between Germany and China, arguing that since the onset of the EMU and the successive membership of China to the WTO a European structural break occurred, with some European countries relying much more on exports rather than domestic demand. A more general issue of sustainability and replicability of the Germany’s export led growth model is raised.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 53002.

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Date of creation: Jan 2014
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Handle: RePEc:pra:mprapa:53002

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Keywords: Great Recession; Europe; Germany; Unemployment; Inflation; Consumption; Investment; Current Account.;

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  1. Luigi Pierfranco Campiglio, 2012. "Europa, crescita e sostenibilità: "e pluribus unum?"," DISCE - Quaderni dell'Istituto di Politica Economica, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) ispe0059, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  2. Luigi Bonatti & Andrea Fracasso, 2012. "The costs of rebalancing the China-US co-dependency," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 120(1), pages 59-106.
  3. Quaas, Georg & Klein, Mathias, 2010. "Clusters and Loops of the German Phillips Curve," MPRA Paper 23094, University Library of Munich, Germany.
  4. Giuseppina Malerba & Marta Spreafico, 2013. "Income inequality in the European Union: evidence from a panel analysis," DISCE - Quaderni dell'Istituto di Politica Economica, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) ispe0065, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  5. Robert Kollmann & Marco Ratto & Werner Roeger & Jan in’t Veld & Lukas Vogel, 2014. "What drives the German current account? And how does it affect other EU member states?," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 516, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  6. Raul Caruso & Marco Di Domizio, 2012. "Hooliganism and demand for football in Italy. Evidence for the period 1962-2011," DISCE - Quaderni dell'Istituto di Politica Economica, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) ispe0062, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  7. Edward S. Knotek & II, 2007. "How useful is Okun's law?," Economic Review, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, issue Q IV, pages 73-103.
  8. Marta Spreafico, 2013. "Institutions, the resource curse and the transition economies: further evidence," DISCE - Quaderni dell'Istituto di Politica Economica, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) ispe0064, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  9. Paul Krugman, 2012. "Revenge of the Optimum Currency Area," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER Macroeconomics Annual 2012, Volume 27, pages 439-448 National Bureau of Economic Research, Inc.
  10. Francesco Vito, 2011. "World Depression and the Crisis of Economic Theory," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 119(3/4), pages 349-356.
  11. John S L McCombie & Marta Spreafico, 2013. "Can only democracies enhance “Human Development”? Evidence from the Former Soviet Countries," DISCE - Quaderni dell'Istituto di Politica Economica, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) ispe0066, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  12. Marta Spreafico, 2010. "What do we know about the link between growth and institutions?," DISCE - Quaderni dell'Istituto di Politica Economica, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) ISPE0053, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
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