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Defining the right internal exchange rate: Chapter 5

Xavier Timbeau (), Lars Anderson, Christophe Blot (), Jerome Creel () and Andrew Watt
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Lars Anderson: Economic Council of the Labour Movement

Sciences Po publications from Sciences Po

Abstract: European economies need to adjust to a sustainable growth path. That implies adjusting internal exchange rates. Since the start of the Great Recession, euro area crisis countries (and more specifically Greece, Portugal, Spain, Italy, Ireland) have engaged in austerity policies in order to slash public deficits, but also in attempt to regain lost competitiveness. These policies, by weighing on internal demand and growth, have successively pushed euro area countries into competitive disinflation policies. This non-cooperative game, whose goal is to win market shares against euro area partners by improving the country’s price-competitiveness, has already had sharp disinflationary effects and runs the risk of pushing the euro area economy into deflation, a threat already identified in last year’s iAGS report. (First paragraph)

Keywords: internal; exchange; rate (search for similar items in EconPapers)
Date: 2015-02
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Published in Revue de l'OFCE - Debates and Policies, 2015, pp.165-189

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