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Nontradable sector reform and external rebalancing in monetary union: A model-based analysis

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  • Vogel, Lukas

Abstract

The paper uses the QUEST III model to analyse the question of whether nontradable (service) sector reform would reduce external imbalances in monetary union, notably from the side of surplus countries. It considers an open economy with a positive net foreign asset (net creditor) position and shows that tradable and nontradable sector reforms, understood as reforms that shift the supply curve in the respective sector outward, tend to have similar external balance effects. Namely, supply-side reforms improve the price competitiveness of domestic output and tend to increase the trade and current account balance on impact. In the longer term, competitiveness gains are compensated by additional imports associated with domestic income growth. Starting from a non-zero NFA position, the denominator effect does also contribute significantly to changes in external accounts relative to GDP. The results are robust across modifications of the model.

Suggested Citation

  • Vogel, Lukas, 2014. "Nontradable sector reform and external rebalancing in monetary union: A model-based analysis," Economic Modelling, Elsevier, vol. 41(C), pages 421-434.
  • Handle: RePEc:eee:ecmode:v:41:y:2014:i:c:p:421-434
    DOI: 10.1016/j.econmod.2013.10.038
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Robert Kollmann & Marco Ratto & Werner Roeger & Jan in't Veld & Lukas Vogel, 2015. "What drives the German current account? And how does it affect other EU Member States?," Economic Policy, CEPR;CES;MSH, vol. 30(81), pages 47-93.
    2. Gomes, S. & Jacquinot, P. & Pisani, M., 2016. "Fiscal devaluation in the euro area: A model-based analysis," Economic Modelling, Elsevier, vol. 52(PA), pages 58-70.
    3. Belke, Ansgar & Gros, Daniel, 2017. "Optimal adjustment paths in a monetary union," Economic Modelling, Elsevier, vol. 67(C), pages 338-345.
    4. Vogel, Lukas, 2017. "Structural reforms at the zero bound," European Journal of Political Economy, Elsevier, vol. 48(C), pages 74-90.
    5. repec:eee:poleco:v:48:y:2017:i:c:p:54-73 is not listed on IDEAS
    6. Dimitris Papageorgiou & Evangelia Vourvachaki, 2015. "The Macroeconomic Impact of Structural Reforms in Product and Labour Markets: Trade-Offs and Complementarities," Working Papers 197, Bank of Greece.
    7. Niels Gilbert & Sebastiaan Pool, 2016. "Sectoral allocation and macroeconomic imbalances in EMU," DNB Working Papers 536, Netherlands Central Bank, Research Department.

    More about this item

    Keywords

    Nontradable sector; Product market reform; External rebalancing; Monetary union;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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