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The impact of market regulations on intra-European real exchange rates

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  • Agnès Bénassy-Quéré

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  • Dramane Coulibaly

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Abstract

We study the contribution of market regulations to the dynamics of the real exchange rate within the European Union. Based on a model proposed by De Gregorio et al. (Rev Int Econ 2(3):284–305, 1994a ), we show that both product market regulations in nontradable sectors and employment protection tend to raise the real exchange rate. We then carry out an econometric estimation for European countries for 1985–2006 to quantify the contributions of the pure Balassa–Samuelson effect and those of market regulations on real exchange-rate variations. Based on this evidence and on a counter-factual experiment, we conclude that the relative evolutions of product market regulations and employment protection across countries play a very significant role for real exchange-rate variations within the European Union and especially within the euro area, through their impacts on the relative price of nontradable goods. Copyright Kiel Institute 2014

Suggested Citation

  • Agnès Bénassy-Quéré & Dramane Coulibaly, 2014. "The impact of market regulations on intra-European real exchange rates," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 150(3), pages 529-556, August.
  • Handle: RePEc:spr:weltar:v:150:y:2014:i:3:p:529-556
    DOI: 10.1007/s10290-014-0185-6
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    Cited by:

    1. repec:oup:cesifo:v:63:y:2017:i:2:p:210-234. is not listed on IDEAS
    2. Sophie Piton, 2018. "Do Unit Labor Costs Matter? A Decomposition Exercise on European Data," PSE Working Papers halshs-01785345, HAL.
    3. Sophie Piton, 2017. "A European Disease? Non-tradable Inflation and Real Interest Rate Divergence," CESifo Economic Studies, CESifo, vol. 63(2), pages 210-234.
    4. Sophie Piton, 2017. "Economic Integration and the Non-tradable Sector: The European Experience," 2017 Papers ppi361, Job Market Papers.
    5. Philippe Frocrain & Pierre-Noël Giraud, 2017. "The evolution of tradable and non-tradable employment: evidence from France," Working Papers hal-01695159, HAL.

    More about this item

    Keywords

    Real exchange rate; Balassa–Samuelson effect; Product market regulations; Employment protection; F41; J50; L40;

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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