Determinants of economic resilience in the euro area: An empirical assessment of policy levers

Maya Jolles, Eric Meyermans and Bořek Vašíček ()

Quarterly Report on the Euro Area (QREA), 2018, vol. 17, issue 3, 27-46

Abstract: This section investigates which structural characteristics matter most for a country's economic resilience. This is done econometrically by comparing the capacity to absorb and recover from common shocks across the euro area Member States. The section aims at identifying a set of factors as diverse and specific as possible in order to guide future policy actions. The results suggest that factors related to the well-functioning of markets matter most. For instance, creating environments that foster entrepreneurship increases the ability to adapt and recover from exogenous shocks. Price controls bothamplify shocks and slow down the recovery. A higher stock of non-performing loans and a weaker competition in the banking sector affect negatively an economy's absorption as well as recovery capacity. Some structural factors such as economic openness appear to have different impact on the shock absorption capacity and the recovery capacity in the face of a common shock. Such findingsreiterate the need to pursue vigorously policies and structural reforms including those that take advantage of synergies and complementarities such as between a well-functioning Banking Union and Capital Markets Union which increases risk-sharing and a further opening to international trade. Finally, the macro-econometric results also imply that more analysis is needed to understand better specific transmission mechanisms such as active labour market policies.

Keywords: economic resilience; vulnerability; absorption; recovery; financial markets; product markets; labour markets; econometric assessment (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:euf:qreuro:0173-02

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