IDEAS home Printed from https://ideas.repec.org/p/hal/spmain/hal-00972761.html
   My bibliography  Save this paper

Productivity, Growth Potential and Monetary Policy in the EMU

Author

Listed:
  • Jean-Paul Fitoussi

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

Abstract

The reversal in the trend of productivity growth between the US and the UK on one side, and the main countries of continental Europe on the other, appears with great evidence from the data. The current debate focuses on differences in labour market performance, which should account for the growth and productivity divergence. While some measures aimed at increasing the participation and employment rates in the EU are certainly desirable, excessive precariousness of the labour market would have deep social implications, and should be subject to democratic approval. Furthermore, one striking aspect of the debate on productivity growth is the moderate emphasis given to investment and capital accumulation. By looking back to the late 1960s, one can observe a striking positive correlation between productivity growth and both private and public investment. If we consider the inherently long term features of investment, the data also show a positive correlation between investment and trend growth (the OECD measure for potential growth). The correlation between investment, productivity, and potential growth, should be better understood and investigated than what is done in the current debate. By doing that, we should also reassess policy in terms of its capacity to provide a favourable environment for capital accumulation. In this respect, the self complacency of policy makers in the EU may appear excessive. The Stability and Growth Pact has seriously affected the capacity of large European countries to invest (the comparison with the golden rule of the UK is in this respect telling), and when assessed with respect to the growth performance of the Euro zone, the monetary policy of the ECB seems less accommodating than usually believed. Excessive interest rates may contribute to explain investment stagnation in the past decade, especially when seen in comparison with the US.

Suggested Citation

  • Jean-Paul Fitoussi, 2006. "Productivity, Growth Potential and Monetary Policy in the EMU," SciencePo Working papers Main hal-00972761, HAL.
  • Handle: RePEc:hal:spmain:hal-00972761
    Note: View the original document on HAL open archive server: https://hal-sciencespo.archives-ouvertes.fr/hal-00972761
    as

    Download full text from publisher

    File URL: https://hal-sciencespo.archives-ouvertes.fr/hal-00972761/document
    Download Restriction: no
    ---><---

    Other versions of this item:

    More about this item

    Keywords

    labour market performance; growth;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:spmain:hal-00972761. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Contact - Sciences Po Departement of Economics (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.