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Labour Market Reforms and Current Account Imbalances: Beggar-thy-neighbour policies in a currency union? CEPS Working Document No. 399/September 2014

Baas, Timo and Belke, Ansgar (2014) Labour Market Reforms and Current Account Imbalances: Beggar-thy-neighbour policies in a currency union? CEPS Working Document No. 399/September 2014. [Working Paper]

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    Abstract

    Member countries of the Economic and Monetary Union (EMU) initiated wide-ranging labour market reforms in the last decade. This process is ongoing as countries that are faced with serious labour market imbalances perceive reforms as the fastest way to restore competitiveness within a currency union. This fosters fears among observers about a beggar-thy-neighbour policy that leaves non-reforming countries with a loss in competitiveness and an increase in foreign debt. Using a two-country, two-sector search and matching DSGE model, we analyse the impact of labour market reforms on the transmission of macroeconomic shocks in both non-reforming and reforming countries. By analysing the impact of reforms on foreign debt, we contribute to the debate on whether labour market reforms increase or reduce current account imbalances.

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    Item Type: Working Paper
    Uncontrolled Keywords: Current account deficit; labour market reforms; DSGE; search and matching labour. market
    Subjects for non-EU documents: EU policies and themes > External relations > international economy
    EU policies and themes > Policies & related activities > employment/labour market > labour/labor
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Centre for European Policy Studies (Brussels) > CEPS Working Documents
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 09 Sep 2014 11:49
    Number of Pages: 38
    Last Modified: 09 Sep 2014 11:49
    URI: http://aei.pitt.edu/id/eprint/53734

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