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Structural reforms and macroeconomic performance in the euro area countries: a model-based assessment

Sandra Gomes (), Pascal Jacquinot, Matthias Mohr () and Massimiliano Pisani ()

No 830, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We quantitatively assess the macroeconomic effects of country-specific supply-side reforms in the euro area by simulating EAGLE, a multi-country dynamic general equilibrium model. We consider reforms in the labor and services markets of Germany (or, alternatively, Portugal) and the rest of the euro area. Our main results are as follows. First, a unilateral markup reduction by 15 percentage points in the German (Portuguese) labor and services market would induce an increase in the long-run German (Portuguese) output equal to 8.8 (7.8) percent. Second, cross-country coordination of reforms would add extra benefits to each region, by limiting the deterioration of relative prices and purchasing power that a country faces when implementing reforms unilaterally. In the long run German (Portuguese) output would increase by 9.2 (8.6) percent. Third, cross-country coordination would make the macroeconomic performance of the different regions more homogeneous, in terms of price competitiveness and real activity. Overall, our results suggest that while reforms implemented individually by each country in the euro area will produce positive effects, cross-country coordination produces larger and more evenly distributed (positive) effects.

Keywords: economic policy; structural reforms; dynamic general equilibrium modeling; competition; markups. (search for similar items in EconPapers)
JEL-codes: C53 E52 F47 (search for similar items in EconPapers)
Date: 2011-10
New Economics Papers: this item is included in nep-cba, nep-cmp, nep-dge, nep-eec, nep-mac and nep-opm
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Related works:
Journal Article: Structural Reforms and Macroeconomic Performance in the Euro Area Countries: A Model-Based Assessment (2013) Downloads
Working Paper: Structural reforms and macroeconomic performance in the euro area countries: a model-based assessment (2011) Downloads
Working Paper: Structural reforms and macroeconomic performance in the euro area countries: a model-based assessment (2011) Downloads
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