Rebalancing the euro area: Is wage adjustment in Germany the answer?

Mathias Hoffmann, Martin Kliem, Michael Krause, Stéphane Moyen and Radek Šauer

No 17/2020, Discussion Papers from Deutsche Bundesbank

Abstract: We assess to what extent wage inflation policies in Germany could contribute to an economic rebalancing in the euro area and the rest of the world. We find that a rise in nominal wage inflation has positive short-run effects on inflation and output in Germany and the rest of the euro area. The duration of constant interest rates and expectations about the monetary policy stance matter to the magnitude of the results obtained. We establish that the modelling of the trade relationships with the rest of the world is of particular importance, as it allows to capture the induced relative price movements and hence changes in competitiveness within the three regions. Our results are obtained from an estimated DSGE model which consists of Germany, the rest of the euro area, and the rest of the world.

Keywords: DSGE model; Bayesian estimation; Monetary policy; Trade balance (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-cba, nep-dge, nep-eec and nep-mac
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Citations: View citations in EconPapers (5)

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Journal Article: Rebalancing the euro area: Is wage adjustment in Germany the answer? (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:172020

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