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Globalisation and the euro area: simulation based analysis using the New Area Wide Model

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  • Straub, Roland
  • Jacquinot, Pascal

Abstract

In this paper, we utilise the multi-country version of the NAWM to analyse the impact of globalisation on euro area macroeconomic aggregates. We provide alternative model-based definitions of globalisation associated with an increase in potential output in emerging Asia and its impact on total factor productivity in the euro area, and a shift in international specialisation patterns leading to changes in relative demand and import substitutions. The results indicate that globalisation has a positive impact on output, consumption, investment and real labour income in the long-run. This impact is driven by the improvement in the terms of trade and associated positive wealth effects, as well as by spillovers of higher potential output in emerging Asia on euro area total factor productivity. Additionally, we provide evidence that structural reforms in goods and labour markets would amplify the benefits associated with globalisation. JEL Classification: E32, E62

Suggested Citation

  • Straub, Roland & Jacquinot, Pascal, 2008. "Globalisation and the euro area: simulation based analysis using the New Area Wide Model," Working Paper Series 907, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2008907
    Note: 1065946
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    References listed on IDEAS

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    Cited by:

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    2. Kolasa, Marcin, 2014. "Real convergence and its illusions," Economic Modelling, Elsevier, vol. 37(C), pages 79-88.
    3. Matthieu Bussière & Emilia Pérez‐Barreiro & Roland Straub & Daria Taglioni, 2011. "Protectionist Responses to the Crisis: Global Trends and Implications," The World Economy, Wiley Blackwell, vol. 34, pages 826-852, May.
    4. Wieland, Volker & Cwik, Tobias & Müller, Gernot J. & Schmidt, Sebastian & Wolters, Maik, 2012. "A new comparative approach to macroeconomic modeling and policy analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 83(3), pages 523-541.
    5. Maria Manuel Campos & Cristina Checherita-Westphal, 2019. "Economic consequences of high public debt and challenges ahead for the euro area," Working Papers o201904, Banco de Portugal, Economics and Research Department.
    6. Pascal Jacquinot & Matija Lozej & Massimiliano Pisani, 2018. "Labor Tax Reforms, Cross-Country Coordination, and the Monetary Policy Stance in the Euro Area: A Structural Model-Based Approach," International Journal of Central Banking, International Journal of Central Banking, vol. 14(3), pages 65-140, June.
    7. Garcia, Pablo & Jacquinot, Pascal & Lenarčič, Črt & Lozej, Matija & Mavromatis, Kostas, 2023. "Global models for a global pandemic: The impact of COVID-19 on small euro area economies," Journal of Macroeconomics, Elsevier, vol. 77(C).
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    9. Wieland, Volker & Lieberknecht, Philipp, 2019. "On the Macroeconomic and Fiscal Effects of the Tax Cuts and Jobs Act," CEPR Discussion Papers 13629, C.E.P.R. Discussion Papers.
    10. Vadym Lepetyuk & Lilia Maliar & Serguei Maliar, 2017. "Should Central Banks Worry About Nonlinearities of their Large-Scale Macroeconomic Models?," Staff Working Papers 17-21, Bank of Canada.
    11. Ansgar Rannenberg, 2019. "Forward guidance with preferences over safe assets," Working Paper Research 364, National Bank of Belgium.
    12. Frank Smets & Kai Christoffel & Günter Coenen & Roberto Motto & Massimo Rostagno, 2010. "DSGE models and their use at the ECB," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 1(1), pages 51-65, March.
    13. Andrea Gerali & Alessandro Notarpietro & Massimiliano Pisani, 2014. "Macroeconomic effects of simultaneous implementation of reforms after the crisis," Temi di discussione (Economic working papers) 997, Bank of Italy, Economic Research and International Relations Area.
    14. Volker Wieland, 2012. "Model comparison and robustness: a proposal for policy analysis after the financial crisis," Chapters, in: Robert M. Solow & Jean-Philippe Touffut (ed.), What’s Right with Macroeconomics?, chapter 2, pages 33-67, Edward Elgar Publishing.

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    More about this item

    Keywords

    DSGE modelling; euro area; globalisation;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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