Boom, Slump, Sudden Stops, Recovery, and Policy Options: Portugal and the Euro
Olivier Blanchard and
Pedro Portugal
No 131, IZA Policy Papers from Institute of Labor Economics (IZA)
Abstract:
Over the past 20 years, Portugal has gone through a boom, a slump, a sudden stop, and now a timid recovery. Unemployment has decreased, but remains high, and output is still far below potential. Competitiveness has improved, but more is needed to keep the current account in check as the economy recovers. Private and public debt are high, both legacies of the boom, the slump and the sudden stop. Productivity growth remains low. Because of high debt and low growth, the recovery remains fragile. We review the history and the main mechanisms at work. We then review a number of policy options, from fiscal consolidation to fiscal expansion, cleaning up of non-performing loans, labor market reforms, product market reforms, and euro exit. We argue that at this point, the main focus of macroeconomic policy should be twofold. The first is the treatment of non- performing loans, which would allow for an increase in demand in the short run and an increase in supply in the medium run. We argue that, to the extent that such treatment requires recapitalization, it makes sense to finance it through an increased fiscal deficit, even in the face of high public debt. The second is product market reforms, and reforms aimed at increasing micro-flexibility in the labor market. Symmetrically, we also argue that at this point, some policies would be undesirable, among them faster fiscal consolidation, measures aimed at decreasing nominal wages and prices, and euro exit.
Keywords: competitiveness; debt; productivity growth; structural reforms (search for similar items in EconPapers)
JEL-codes: E32 E62 J30 J60 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2017-08
New Economics Papers: this item is included in nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (26)
Downloads: (external link)
https://docs.iza.org/pp131.pdf (application/pdf)
Related works:
Journal Article: Boom, slump, sudden stops, recovery, and policy options. Portugal and the Euro (2017)
Working Paper: Boom, Slump, Sudden stops, Recovery, and Policy Options. Portugal and the Euro (2017)
Working Paper: Boom, Slump, Sudden Stops, Recovery, and Policy Options: Portugal and the Euro (2017)
Working Paper: Boom, Slump, Sudden stops, Recovery, and Policy Options. Portugal and the Euro (2017)
Working Paper: Boom, Slump, Sudden stops, Recovery, and Policy Options. Portugal and the Euro (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:iza:izapps:pp131
Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
library@iza.org
Access Statistics for this paper
More papers in IZA Policy Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte (hinte@iza.org).