Structural Reforms and Macroeconomic Performance in the Euro Area Countries: A Model-Based Assessment

59 Pages Posted: 14 Feb 2012

See all articles by Sandra Gomes

Sandra Gomes

Bank of Portugal

Pascal Jacquinot

European Central Bank (ECB)

Matthias F. Mohr

European Central Bank (ECB)

Massimiliano Pisani

Bank of Italy

Multiple version iconThere are 2 versions of this paper

Date Written: October 14, 2011

Abstract

We quantitatively assess the macroeconomic effects of country-specific supply-side reforms in the euro area by simulating EAGLE, a multi-country dynamic general equilibrium model. We consider reforms in the labor and services markets of Germany (or, alternatively, Portugal) and the rest of the euro area. Our main results are as follows. First, a unilateral markup reduction by 15 percentage points in the German (Portuguese) labor and services market would induce an increase in the long-run German (Portuguese) output equal to 8.8 (7.8) percent. Second, cross-country coordination of reforms would add extra benefits to each region, by limiting the deterioration of relative prices and purchasing power that a country faces when implementing reforms unilaterally. In the long run German (Portuguese) output would increase by 9.2 (8.6) percent. Third, cross-country coordination would make the macroeconomic performance of the different regions more homogeneous, in terms of price competitiveness and real activity. Overall, our results suggest that while reforms implemented individually by each country in the euro area will produce positive effects, cross-country coordination produces larger and more evenly distributed (positive) effects.

Keywords: economic policy, structural reforms, dynamic general equilibrium modeling, competition, markups

JEL Classification: C53, E52, F47

Suggested Citation

Gomes, Sandra and Jacquinot, Pascal and Mohr, Matthias F. and Pisani, Massimiliano, Structural Reforms and Macroeconomic Performance in the Euro Area Countries: A Model-Based Assessment (October 14, 2011). Bank of Italy Temi di Discussione (Working Paper) No. 830, Available at SSRN: https://ssrn.com/abstract=2004402 or http://dx.doi.org/10.2139/ssrn.2004402

Sandra Gomes

Bank of Portugal ( email )

Rua Francisco Ribeiro, 2
Lisbon, 1150-165
Portugal

Pascal Jacquinot

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Matthias F. Mohr

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Massimiliano Pisani (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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