Structural Reforms And Macroeconomic Performance In The Euro Area Countries: A Model-based Assessment
Source: European Central Bank
The authors 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. They consider reforms in the labor and services markets of Germany (or, alternatively, Portugal) and the rest of the euro area. Their main results are as follows. First, there are benefits from implementing unilateral structural reforms. A reduction of markup 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 in the euro area, by limiting the deterioration of relative prices and purchasing power that a country faces when implementing reforms unilaterally.