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Chapter 2: Macroeonomic adjustment in the euro area – the cases of Ireland and Italy

  • Lars Calmfors
  • Giancarlo Corsetti
  • Michael P. Devereux
  • Seppo Honkapohja
  • Gilles Saint-Paul
  • Hans-Werner Sinn
  • Jan-Egbert Sturm
  • Xavier Vives

This chapter analyses macroeconomic adjustment within the euro area. The focus is on the adjustment problems in Ireland (which has had a booming economy) and Italy (which has instead been exposed to strong contractionary shocks). The analysis stresses how adjustment processes may be much more complex than was believed earlier. One reason is asset price dynamics. Another is that supply- side adjustment mechanisms, such as labour migration, may also have demand effects. A key conclusion is that deregulations that enhance productivity growth may be a key adjustment mechanism in the medium term for a country – like Italy – that needs to improve its competitiveness.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/ZS/ZS-EEAG_Report/zs-eeag-2007/eeag_report_chap2_2007.pdf
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Article provided by CESifo Group Munich in its journal EEAG Report on the European Economy.

Volume (Year): (2007)
Issue (Month): (02)
Pages: 59-72

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Handle: RePEc:ces:eeagre:v::y:2007:i::p:59-72
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  1. Ramon Marimon & Fabrizio Zilibotti, 1997. "Unemployment vs. mismatch of talents: Reconsidering unemployment benefits," Economics Working Papers 211, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Giancarlo Corsetti & Paolo Pesenti, 2005. "The simple geometry of transmission and stabilization in closed and open economies," Staff Reports 209, Federal Reserve Bank of New York.
  3. W.H. Buiter, 2000. "Optimal Currency Areas: Why Does the Exchange Rate Regime Matter? (With an Application to UK Membership in EMU)," CEP Discussion Papers dp0462, Centre for Economic Performance, LSE.
  4. Andersen, Torben M. & Sorensen, Jan Rose, 1988. "Exchange rate variability and wage formation in open economies," Economics Letters, Elsevier, vol. 28(3), pages 263-268.
  5. Giancarlo Corsetti & Luca Dedola & Sylvain Leduc, 2006. "Productivity, External Balance and Exchange Rates: Evidence on the Transmission Mechanism Among G7 Countries," NBER Working Papers 12483, National Bureau of Economic Research, Inc.
  6. Michael Devereux & Charles Engel, 2000. "Monetary Policy in the Open Economy Revisited: Price Setting and Exchange Rate Flexibiity," Working Papers 0016, University of Washington, Department of Economics.
  7. Patrick Honohan & Anthony Leddin, 2005. "Ireland in EMU: more shocks, less insulation?," The Institute for International Integration Studies Discussion Paper Series iiisdp94, IIIS.
  8. Miller, Marcus & Sutherland, Alan, 1991. "The "Walters Critique" of the EMS--A Case of Inconsistent Expectations?," The Manchester School of Economic & Social Studies, University of Manchester, vol. 59(0), pages 23-37, Supplemen.
  9. Maurice Obstfeld & Kenneth Rogoff, 2003. "Global Implications of Self-Oriented National Monetary Rules," Macroeconomics 0303018, EconWPA.
  10. Lars Calmfors & Asa Johansson, 2004. "Unemployment Benefits, Contract Length and Nominal Wage Flexibility," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(1), pages 23-44, 03.
  11. Corsetti, Giancarlo, 2006. "Openness and the case for flexible exchange rates," Research in Economics, Elsevier, vol. 60(1), pages 1-21, March.
  12. repec:cup:cbooks:9780521495479 is not listed on IDEAS
  13. Benigno, Pierpaolo, 2004. "Optimal monetary policy in a currency area," Journal of International Economics, Elsevier, vol. 63(2), pages 293-320, July.
  14. Calmfors, Lars, 1998. "Macroeconomic Policy, Wage Setting and Employment - What Difference Does the EMU Make?," Seminar Papers 657, Stockholm University, Institute for International Economic Studies.
  15. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-25, July.
  16. Andrea Ichino & Regina T. Riphahn, 2001. "The Effect of Employment Protection on Worker Effort. A Comparison of Absenteeism During and After Probation," CESifo Working Paper Series 596, CESifo Group Munich.
  17. Adão, Bernardino & Correia, Isabel & Teles, Pedro, 2006. "On the Relevance of Exchange Rate Regimes for Stabilization Policy," CEPR Discussion Papers 5797, C.E.P.R. Discussion Papers.
  18. Duarte, Margarida & Obstfeld, Maurice, 2008. "Monetary policy in the open economy revisited: The case for exchange-rate flexibility restored," Journal of International Money and Finance, Elsevier, vol. 27(6), pages 949-957, October.
  19. Roche, Maurice, 2003. "Will there be a Crash in Irish House Prices?," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI), vol. 2003(4-Winter), pages 1-16.
  20. Alan Barrett & Yvonne McCarthy, 2007. "Immigrants in a Booming Economy: Analysing Their Earnings and Welfare Dependence," LABOUR, CEIS, vol. 21(4-5), pages 789-808, December.
  21. Broda, Christian, 2006. "Exchange rate regimes and national price levels," Journal of International Economics, Elsevier, vol. 70(1), pages 52-81, September.
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