 Modelling internal devaluation experiences in Europe: Rational or learning agents?Elena Angelini, Alistair Dieppe and B. Pierluigi Journal of Macroeconomics, 2015, vol. 43, issue C, 81-92 Abstract: In this paper we study the experiences of wage and price mark-up adjustments (internal devaluation) in Germany (in the decade up to 2009) and Spain (in the 5-year after 2009) within the framework of the ECB’s New Multi-Country Model (NMCM). The NMCM works both in a rational expectation environment and in a learning environment. We show that a learning environment (where agents take time to adapt to the new situation) appears well suited to capture the gradual wage and price adjustment of Germany and Spain. By contrast a rational expectation model appears more appropriate to describe the abrupt wage adjustment which took place in the Baltic States in 2008–09. The two environments appear to reflect the institutional differences between Germany and Spain on the one-hand and the Baltic States on the other hand. Moreover, in the learning environment, GDP and employment gains are delayed with respect to a rational expectation setting, but they are more long-lasting. Keywords: Internal devaluation; Competitiveness; Price and wage mark-ups; Relative price adjustment in a monetary union; Rational and learning expectations (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:43:y:2015:i:c:p:81-92 DOI: 10.1016/j.jmacro.2014.08.008 Access Statistics for this article Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos More articles in Journal of Macroeconomics from Elsevier |
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