Spain in the Euro: A General Equilibrium Analysis
47 Pages Posted: 20 Jan 2010
Date Written: December 23, 2009
This paper analyzes the determinants of Spain's macroeconomic fluctuations since the inception of the euro in 1999, with a special attention to observed growth and inflation differentials with respect to the rest of the European Monetary Union (EMU). For that purpose we estimate the Banco de España DSGE model of the Spanish economy and the rest of the Eurosystem (BEMOD). We find that observed differentials are the result of a combination of asymmetric country-specific shocks (in particular, demand and productivity shocks for growth and cost-push shocks for inflation) as well as asymmetric economic structure (especially lower nominal wage and price rigidities in Spain). Finally, we find that EMU membership has had a non-negligible effect on observed differentials.
Keywords: DSGE model, monetary union, growth and inflation differentials, Bayesian inference
JEL Classification: C11, C51, E17
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