Structural Reforms, Investment and Zero Lower Bound in a Monetary Union

Andrea Gerali (), Alessandro Notarpietro and Massimiliano Pisani

Manchester School, 2015, vol. 83, 120-139

Abstract: type="main">

We assess the effects of competition-friendly reforms on the zero lower bound (ZLB) on the monetary policy rate in a monetary union, using a dynamic general equilibrium model calibrated to two regions within the euro area (EA) and the rest of the world.

Reforms simultaneously implemented in the entire EA favor an earlier exit from the ZLB if they generate sufficient short-run inflationary effects. This happens if capital accumulation increases, magnifying the expansionary effects of reforms on permanent income and, thus, short-run aggregate demand. If investment does not increase, the effects are not sufficient to reduce the ZLB duration.

Date: 2015
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