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Differences in Resilience Between the Euro-Area and US Economies

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  • Aaron Drew
  • Mike Kennedy
  • Torsten Sløk

Abstract

This paper is concerned with how stylised differences in monetary policy transmission mechanisms and product and labour market rigidities between the US and euro-area economies affect their resilience to temporary shocks. To address this issue, a small general equilibrium model with long-run neoclassical and short-run neo-Keynesian features is calibrated to replicate the key properties of the US economy (as in the US Fed’s FRB-US model). To this model, features of the euro area’s financial and then product and labour markets are added sequentially with a view to replicating what is generally agreed are aspects of the functioning of the euro-area economy (as captured by the ECB’s Area-Wide Model). Most of the analysis is conducted assuming identical monetary policy reaction functions, although the sensitivity of the results to this assumption is tested. The results illustrate the importance of adjustment patterns in financial, product and labour markets for economies’ ... Les différences, en termes de résilience, entre l'économie américaine et celle de la zone euro Ce document étudie les principales différences en matière de transmission de la politique monétaire et de rigidités des marchés des produits et du travail, et leurs effets sur la résilience des économies des États-Unis et de la zone euro aux chocs temporaires. Un petit modèle d’équilibre général, de facture néo-classique sur le long terme et néo-keynésienne sur le court terme, est calibré pour reproduire les comportements clés de l’économie américaine (tels que les décrit le modèle FRB-US de la Banque de réserve fédérale des États-Unis). Des caractéristiques des marchés financiers puis des marchés des produits et du travail de la zone euro sont ensuite incorporées dans le modèle afin de mieux capter certains aspects du fonctionnement de l’économie de la zone euro (tels que les décrit le modèle de la BCE couvrant la zone euro). L’analyse repose largement sur des fonctions de réaction de la politique monétaire identiques, mais l'importance de cette hypothèse est testée. Les résultats ...

Suggested Citation

  • Aaron Drew & Mike Kennedy & Torsten Sløk, 2004. "Differences in Resilience Between the Euro-Area and US Economies," OECD Economics Department Working Papers 382, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:382-en
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    File URL: http://dx.doi.org/10.1787/765432685773
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    Cited by:

    1. Maciej Bukowski & Grzegorz Koloch & Piotr Lewandowski & Anna Baranowska & Iga Magda & Arkadiusz Szydlowski & Jacek Bielinski & Magdalena Bober & Malgorzata Sarzalska & Julian Zawistowski, 2008. "Employment in Poland 2007. Security on a Flexible Labour Market," Books and Reports published by IBS, Instytut Badan Strukturalnych, number zwp2007 edited by Maciej Bukowski.
    2. Douglas Sutherland & Peter Hoeller, 2014. "Growth Policies and Macroeconomic Stability," OECD Economic Policy Papers 8, OECD Publishing.
    3. Hashiguchi, Yoshihiro & Yamano, Norihiko & Webb, Colin, 2017. "Economic shocks and changes in global production structure : methods for measuring economic resilience," IDE Discussion Papers 649, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    4. Jan L. Bednarczyk, 2006. "The Concept Of Neutral Inflation And Its Application To The Eu Economic Growth Analyses," Quaderni del Dipartimento di Economia, Finanza e Statistica 25/2006, Università di Perugia, Dipartimento Economia.
    5. Jean-Philippe Cotis & Jonathan Coppel, 2005. "Business Cycle Dynamics in OECD Countries: Evidence, Causes and Policy Implications," RBA Annual Conference Volume,in: Christopher Kent & David Norman (ed.), The Changing Nature of the Business Cycle Reserve Bank of Australia.
    6. Douglas Sutherland & Peter Hoeller, 2013. "Growth-promoting Policies and Macroeconomic Stability," OECD Economics Department Working Papers 1091, OECD Publishing.
    7. Adam Elbourne & Debby Lanser & Bert Smid & Martin Vromans, 2008. "Macroeconomic resilience in a DSGE model," CPB Discussion Paper 96, CPB Netherlands Bureau for Economic Policy Analysis.
    8. Thomas Le Barbanchon & Olivier Simon, 2012. "Les marchés du travail français et américain face aux chocs conjoncturels des années 1986 à 2007 : une modélisation DSGE," Économie et Statistique, Programme National Persée, vol. 451(1), pages 69-90.
    9. Aaron Drew & Rishab Sethi, 2007. "The transmission mechanism of New Zealand monetary policy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 70, June.

    More about this item

    Keywords

    CGE modelling; euro area; labour and product market rigidities; modèle EGC; mécanisme de transmission; resilience; rigidités des marchés des produits et du travail; résilience; transmission mechanism; zone Euro;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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