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This paper analyses how price-competitiveness (measured by both real exchange rate and inflation differentials) adjusts with the euro area and what role labour and product market regulations can play in this adjustment process. Two alternative perspectives are considered to capture the competitiveness adjustment: the reaction to the country - specific cyclical divergences - also called "Short-term demand shocks" such as a relative slack or relative boom with respect to the euro area trade partners - and the country-specific response to common competitiveness shocks.
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