Structural Reforms and Stabilization Policies in the Euro Area

Kari E.O. Alho

No 31, ETLA Working Papers from The Research Institute of the Finnish Economy

Abstract: Specifying a structurally built NKM model for EMU, and identifying in it the determinants of the potential output and the short-run cyclical factors, we consider structural reforms and monetary and fiscal policies in the euro area. Especially, we analyse whether structural reforms are deflationary or boost the economy in the short run and create spillovers within the euro area under the zero lower bound (ZLB) of the interest rate. We find that a structural reform towards a more competitive economy by lowering the mark ups in the goods and labour market is beneficial both in the short and long run, and both under normal and the ZLB situation in the financial markets. Coordination of reforms within the euro area is also called for, because the spillovers from reforms are typically negative. The national governments searching for an optimal structural policy can delegate the stabilization efforts to the ECB in a long-run equilibrium, but in the short run this separation does not hold in general. We find that in a recession the reform policy is typically curtailed, while in a boom it initially exceeds the long-run equilibrium of reform activity. Proper fiscal policy can alleviate this problematic feature in structural reform policies.

Keywords: structural reform; EMU; coordination (search for similar items in EconPapers)
JEL-codes: E61 E63 F42 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2015-08-24
New Economics Papers: this item is included in nep-cba, nep-eec, nep-ger, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.etla.fi/wp-content/uploads/ETLA-Working-Papers-31.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rif:wpaper:31

Ordering information: This working paper can be ordered from
https://www.etla.fi/ ... es-in-the-euro-area/
orders@etla.fi

Access Statistics for this paper

More papers in ETLA Working Papers from The Research Institute of the Finnish Economy Contact information at EDIRC.
Bibliographic data for series maintained by Kaija Hyvönen-Rajecki (info@etla.fi).