Structural reforms, fiscal consolidation and external rebalancing in monetary union: A model-based analysis

Lukas Vogel

Economic Modelling, 2012, vol. 29, issue 4, 1286-1298

Abstract: The paper analyses the impact of structural reforms on external positions in monetary union in a 3-region version of QUEST III. Wage cost moderation and fiscal consolidation improve the current account balance in the medium term, but positive income effects tend to offset the initial increase in the long term. The general pattern is robust across alternative levels of initial foreign indebtedness. While lasting imbalance correction requires a contraction of debt-financed domestic demand, supply-side reform can mitigate the associated output contraction. A scenario is given as illustration that would reverse the 20% competitiveness loss in the EMU periphery during the 2000s and reduce foreign and government debt by 30% and 50% of GDP within ten years.

Keywords: External imbalances; Monetary union; Structural reforms; Fiscal consolidation (search for similar items in EconPapers)
JEL-codes: F30 F41 F42 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:29:y:2012:i:4:p:1286-1298

DOI: 10.1016/j.econmod.2012.04.018

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