Patterns of Convergence and Divergence in the Euro Area

Estrada, Ángel; Galı́, Jordi; López‐Salido, David

doi:10.1057/imfer.2013.22

Cited by 72 publications

(54 citation statements)

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“…Four non-price competitiveness factors stand out in explaining the current account performance: (i) goods markets efficiency; (ii) the ability of entrepreneurs to adopt existing technologies to enhance the productivity of industries; (iii) the quality of countries' business networks and supporting industries; and (iv) innovation capabilities. Estrada, Galí, and López-Salido (2013) find the role of these factors to be more important than a reduction in wages for reducing and sustaining current account deficits.…”

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confidence: 94%

“…However, their results attribute only a moderate role to the wage restraint in the emergence of the surpluses, while the Commission economists find the main drivers of the surpluses to be (i) financial market integration and interest rate convergence in the euro area leading to a narrowing of risk premia and thus net capital outflow from Germany and correspondingly weakening domestic investment, (ii) strong world demand particularly for German capital goods as well as (iii) higher household savings due to population aging accompanied by the introduction of a private pillar in the pension system. In another related paper, Estrada, Galí, and López-Salido (2013), who study patterns of convergence and divergence in the euro area empirically, investigate the driving forces of the current account among others. They find that relative price levels of tradable goods do not show a strong relation with current account imbalances, whereas the so-called non-price competitiveness factors do.…”

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confidence: 99%

“…To sum up, both European Commission (2012) and Estrada, Galí, and López-Salido (2013) emphasize the importance of a number of non-competitiveness factors as potential driving forces the German current account/trade surpluses. While those factors are out of the scope of our analysis and not included in our model, they are useful potential candidates to explain the gap particularly as to trade surpluses between our model' estimates and the data.…”

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confidence: 99%

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The German Labour Market Reforms in a European Context: A DSGE Analysis

Busl

Seymen

2013

SSRN Journal

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Abstract While a widespread consensus exists among macroeconomists that the German labour market reforms in [2003][2004][2005] have successfully contributed to the decline of the unemployment rate, critics claim that the reforms led to wage restraint and consequently consumption dampening accompanied by beggar-thy-neighbour effects, harming Germany's trade partners. We check up on the validity of these arguments by means of a two-country DSGE model featuring intra-industry trade and labour market frictions. Our results suggest that the disproportional growth of GDP (labour productivity) in comparison to consumption (wages) are only partially driven by the reforms. However, we do not find that the reforms contribute to Germany's trade surplus and cause negative spillovers to trading partners in terms of output and employment. The German Labour Market Reforms in a EuropeanJEL classification: E24, E61, E65, F42, J38, J63

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The German Labour Market Reforms in a European Context: A DSGE Analysis

Busl

Seymen

2013

SSRN Journal

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“…Inflation is no longer a major defining feature of macroeconomic difference after the crisis, as shown by the lack of influence of HICP on defining clusters in the 2013 model. Buti and Turrini (2015) [14] at the European Commission and Estrada, et al (2013) [32] argue that inflation rates did converge over the long term through the preparations for monetary union and into the first decade of the euro. That puts the periodic divergence of HICP in 2006, when inflation was a defining feature of cluster difference, into a longer term perspective (Buti, 2015 [33]).…”

Section: Discussionmentioning

confidence: 99%

Convergence and Heterogeneity in Euro Based Economies: Stability and Dynamics

Haynes

2016

Economies

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Cluster analysis is used to explore the performance of key macroeconomic variables in European countries that share the euro, from the inception of the currency in 2002 through to 2013. An original applied statistical approach searches for a pattern synthesis across a matrix of macroeconomic data to examine if there is evidence for country clusters and whether there is convergence of the cluster patterns over time. A number of different clusters appear and these change over time as the economies of the member states dynamically interact. This includes some new countries joining the currency during the period of examination. As found in previous research, Southern European countries tend to remain separate from other countries. The new methods used, however, add to an understanding of some differences between Southern European countries, in addition to replicating their broad similarities. Hypotheses are formed about the country clusters existing in 2002, 2006 and 2013, at key points in time of the euro integration process. These hypotheses are tested using the rigour of a bivariate analysis and the multivariate method of Qualitative Comparative Analysis (QCA). The results confirm the hypotheses of cluster memberships in all three periods. The confirmation analysis provides evidence about which variables are most influencing cluster memberships at each time point. In 2002 and 2006, differences between countries are influenced by their different Harmonised Index of Consumer Prices (HICP) and labour productivity scores. In 2013, after the crisis, there is a noticeable change. Long term interest rates and gross government debt become key determinants of differences, in addition to the continuing influence of labour productivity. The paper concludes that in the last decade the convergence of countries sharing the euro has been limited, by the joining of new countries and the circumstances of the global economic crisis. The financial crisis has driven divergences from pre-existing integration. Country convergence needs to be understood as a dynamic and multivariate concept. This is a significant development of convergence theory and is an addition to how the concept has been understood previously.

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“…Furthermore, the authors emphasize that cumulated inflation differentials have persistently diverged among EMU countries form the initiation of the monetary union. Theses persistent inflation differentials were analysed by Estrada et al (2012) and concluded that such benign phenomenon can be influenced by a structural convergence process according to a Balassa-Samuelson type of argument and the source of enduring and damaging losses of competitiveness. Consequently, the increase in the inflation rate should put upward pressure on government bond yields.…”

Section: Source: Author's Calculationsmentioning

confidence: 99%