Deciphering the Macroeconomic Effects of Internal Devaluations in a Monetary Union / Javier Andrés, Óscar Arce, Jesús Fernández-Villaverde, Samuel Hurtado.

Format:

Book

Author/Creator:

Andrés, Javier.

Contributor:

National Bureau of Economic Research.

Arce, Óscar.

Fernández-Villaverde, Jesús.

Hurtado, Samuel.

Series:

Working Paper Series (National Bureau of Economic Research) no. w27347.

NBER working paper series no. w27347

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

We study the macroeconomic effects of internal devaluations undertaken by a periphery of countries belonging to a monetary union. We find that internal devaluations have large and positive output effects in the long run. Through an expectations channel, most of these effects carry over to the short run. Internal devaluations focused on goods markets reforms are generally more powerful in stimulating growth than reforms aimed at moderating wages, but the latter are less deflationary. For a monetary union with a periphery the size of the euro area's, the countries at the periphery benefit from internal devaluations even at the zero lower bound (ZLB) of the nominal interest rate. Nevertheless, when the ZLB binds, there is a case for a sequencing of reforms that prioritizes labor policies over goods markets reforms.

Notes:

Print version record

June 2020.