Structural reforms and macroeconomic performance in the euro area countries: a model-based assessment

Matthias Mohr (), Pascal Jacquinot, Massimiliano Pisani and Sandra Gomes

No 1323, Working Paper Series from European Central Bank

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, there are benefits from implementing unilateral structural reforms. A reduction of markup 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. As reforms are implemented gradually over a period of five years, output would smoothly reach its new long-run level in seven years. Second, cross-country coordination of reforms would add extra benefits to each region in the euro area, by limiting the deterioration of relative prices and purchasing power that a country faces when implementing reforms unilaterally. This is true in particular for a small and open economy such as Portugal. Specifically, in the long run German output would increase by 9.2 percent, Portuguese output by 8.6 percent. Third, cross-country coordination would make the macroeconomic performance of the different regions belonging to the euro area more homogeneous, both in terms of price competitiveness and real activity. Overall, our results suggest that reforms implemented apart by each country in the euro area produce positive effects, cross-country coordination produces larger and more evenly distributed (positive) effects. JEL Classification: C53, E52, F47

Keywords: competition; dynamic general equilibrium modeling; Economic policy; markups; monetary policy; structural reforms (search for similar items in EconPapers)
Date: 2011-04
New Economics Papers: this item is included in nep-cba, nep-cmp, nep-dge, nep-eec, nep-mac and nep-opm
Note: 79802
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Related works:
Journal Article: Structural Reforms and Macroeconomic Performance in the Euro Area Countries: A Model-Based Assessment (2013)
Working Paper: Structural reforms and macroeconomic performance in the euro area countries: a model-based assessment (2011)
Working Paper: Structural reforms and macroeconomic performance in the euro area countries: a model-based assessment (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20111323

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