Pascal Jacquinot

Structural Reforms and Macroeconomic Performance in the Euro Area Countries: A Model-Based Assessment

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.

The EAGLE. A model for policy analysis of macroeconomic interdependence in the euro area

Building on the New Area Wide Model, we develop a 4-region macroeconomic model of the euro area and the world economy. The model (EAGLE, Euro Area and Global Economy model) is microfounded and designed for conducting quantitative policy analysis of macroeconomic interdependence across regions belonging to the euro area and between euro area regions and the world economy. Simulation analysis shows the transmission mechanism of region-specific or common shocks, originating in the euro area and abroad.

Can We Prevent Boom-Bust Cycles During Euro Area Accession?

Euro-area accession caused boom-bust cycles in several catching-up economies. Declining interest rates and easier financing conditions fuelled spending and worsened the current account balance. Over time inflation deteriorated external competitiveness and lowered domestic demand, turning the boom into a bust. We ask whether such a scenario can be avoided using macroeconomic tools that are available in the period of joining a monetary union: central parity revaluation, fiscal tightening or increased taxation. While all these policies can be used to cool down the output boom, exchange rate revaluation seems the most attractive option. It simultaneously trims the expansion of output and domestic demand, reduces the cost pressure and ranks first in terms of welfare.

An Open-Economy DSGE Model of the Euro Area

An open-economy DSGE model for the euro area is presented, with the explicit aim to model the price pass-through for foreign shocks, with a special emphasis on oil price shocks. The model includes a multiple-sector supply side with explicit use of energy as a factor of production and the presence of distribution costs. The model is augmented with an almost symmetric rest of the world and a simpli ed set of equations for energy-exporting countries. Calibration of the model is done suing extensive use of data, including input-output tables. The conclusion is that a modelling of imports as input factors, not only nal-demand goods, may help mapping the structure into the data and provide a more robust analysis of the pass-through.

Structural Reforms at the Effective Lower Bound: Insights from the EAGLE Model

This chapter discusses the short-term impact of structural reforms in an environment where monetary policy is constrained by the effective lower bound. Illustrative model-based simulations show that structural reforms associated with a reduction in price mark-ups may entail transitory output costs, which, however, can be reduced or eliminated by an appropriate sequencing of structural reforms, cross-country coordination, supportive fiscal policy or application of non-standard monetary policy measures. The simulations show that any type of easing (including non-standard monetary policy measures) that reduces the stringency of the effective lower bound constraint can be beneficial for reform implementation.