Employment and the “Investment Gap”: An Econometric Model of European Imbalances

Luigi Pierfranco Campiglio

MPRA Paper from University Library of Munich, Germany

Abstract: We specify a VEC model based on six main macroeconomic imbalances to explain the Great European Recession, in Germany, France, Spain and Italy, from 1999 to 2013, estimating their long-term relationships. We focus on employment and unemployment as the main imbalances and identify consumption and investment slumps, prompted by fiscal consolidation, as the causes and current account rebalance and low inflation as the main consequences. Our main results are the following: a) public investment is the main policy instrument which can foster employment, prompting private investment and growth, exports can only partly balance a falling domestic demand; b) the unemployment-current account trade-off is a structural constraint to a lower unemployment level; c) mild deflation set in as a consequence of the consumption slump and oil price decline; d) breaks dates for consumption and inflation thresholds are estimated; and e) Germany successfully passed through the European recession by sharply increasing its exports and reshaping its economic role.

Keywords: E21; E22; E24; E31; F32; F45; O52 (search for similar items in EconPapers)
JEL-codes: E0 E22 (search for similar items in EconPapers)
Date: 2015-05
New Economics Papers: this item is included in nep-eec and nep-mac
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Related works:
Working Paper: Employment and the “Investment Gap”: An Econometric Model of European Imbalances (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:64113

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