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The magnitude of euro area misalignements in 2017

Author

Listed:
  • Bruno Ducoudré

    (OFCE, Sciences Po, Paris, France)

  • Xavier Timbeau

    (OFCE, Sciences Po, Paris, France)

  • Sébastien Villemot

    (OFCE, Sciences Po, Paris, France)

Abstract

This paper is aimed at revisiting monetary analysis in order to better understand erroneous choices in the conduct of monetary policy. According to the prevailing consensus, the market economy is intrinsically stable and is upset only by poor behaviour by government or the banking system. We maintain on the contrary that the economy is unstable and that achieving stability requires a discretionary economic policy. This position relies upon an analytical approach in which monetary and financial organisations are devices that help markets to function. In this perspective, which focuses on the heterogeneity of markets and agents, and, consequently, on the role of institutions in determining overall performance, it turns out that nominal rigidities and financial commitment offer the means to achieve economic stability. This is because they prevent successive, unavoidable disequilibria from becoming explosive. Classification-JEL: Equilibrium exchange rate, trade balance, price-competitiveness

Suggested Citation

  • Bruno Ducoudré & Xavier Timbeau & Sébastien Villemot, 2018. "The magnitude of euro area misalignements in 2017," Documents de Travail de l'OFCE 2018-45, Observatoire Francais des Conjonctures Economiques (OFCE).
  • Handle: RePEc:fce:doctra:1845
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    File URL: http://www.ofce.sciences-po.fr/pdf/dtravail/WP2018-45.pdf
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    Keywords

    E31; F41;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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