Competitiveness and External Imbalances within the Euro Area

76 Pages Posted: 9 Feb 2013

See all articles by Alistair Dieppe

Alistair Dieppe

European Central Bank (ECB)

Stephane Dees

European Central Bank (ECB)

Pascal Jacquinot

European Central Bank (ECB)

Tohmas Karlsson

European Central Bank (ECB)

Chiara Osbat

European Central Bank (ECB)

Selin Ozyurt

European Central Bank (ECB)

Igor Vetlov

Bank of Lithuania

Axel Jochem

Deutsche Bundesbank

Zacharias Bragoudakis

Bank of Greece

Dimitris Sideris

Independent

Patrocinio Tello

Banco de España

Jean Charles Bricongne

Banque de France

Guillaume Gaulier

Banque de France

Massimiliano Pisani

Bank of Italy

Niki Papadopoulou

Independent

Brian Micallef

Central Bank of Malta - Modelling and Research Office

Viktors Ajevskis

Bank of Latvia

Michal Brzoza-Brzezina

National Bank of Poland; Warsaw School of Economics (SGH)

Sandra Gomes

Bank of Portugal

Judit Kreko

Magyar Nemzeti Bank

Milan Vyskrabka

Independent

Date Written: December 2012

Abstract

The onset of the financial crisis in 2008 has highlighted the problems of diverging external imbalances within Economic and Monetary Union (EMU) and the role of persistent losses in competitiveness. This paper starts by investigating some of the competitiveness factors which contributed to external imbalances in euro area countries. The evidence suggests significant heterogeneity across countries in both price/cost and non-price competitiveness in the euro area and that there is no one factor, but rather a range of potential factors explaining diverging external imbalances. In particular, while non-price competitiveness effects contributed largely to the trade surplus in some countries, for some southern European countries the trade balance was also driven by price factors. The second part of the paper studies the implications of competitiveness adjustment by means of quantitative tools. Using four different multi-country macro models, improvements in both price/cost aspects (namely wage reduction, productivity improvements or fiscal devaluation) and non-price competitiveness factors (quality improvements) were shown – under certain conditions – to improve external imbalances. The analysis suggests differences in countries’ composition of trade could lead to heterogeneity in the potential gains from improvements in competitiveness.

Keywords: competitiveness, trade, open economy, Euro area, macro models, simulations

JEL Classification: F10, F41, F43, F47, O52

Suggested Citation

Dieppe, Alistair and Dees, Stephane and Jacquinot, Pascal and Karlsson, Tohmas and Osbat, Chiara and Ozyurt, Selin and Vetlov, Igor and Jochem, Axel and Bragoudakis, Zacharias and Sideris, Dimitris and Tello, Patrocinio and Bricongne, Jean Charles and Gaulier, Guillaume and Pisani, Massimiliano and Papadopoulou, Niki and Micallef, Brian and Ajevskis, Viktors and Brzoza-Brzezina, Michal and Gomes, Sandra and Kreko, Judit and Vyskrabka, Milan, Competitiveness and External Imbalances within the Euro Area (December 2012). ECB Occasional Paper No. 139. Available at SSRN: https://ssrn.com/abstract=2174899

Alistair Dieppe (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Stephane Dees

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Pascal Jacquinot

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Tohmas Karlsson

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Chiara Osbat

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 6821 (Phone)
+49 69 1344 6000 (Fax)

Selin Ozyurt

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Igor Vetlov

Bank of Lithuania ( email )

Totoriu 4
Vilnius, LT-01121
Lithuania

Axel Jochem

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Zacharias Bragoudakis

Bank of Greece ( email )

21 E. Venizelos Avenue
GR 102 50 Athens
Greece
+302103203605 (Phone)

Dimitris Sideris

Independent ( email )

No Address Available

Patrocinio Tello

Banco de España ( email )

Alcala, 48
Madrid, Madrid 28014
Spain
34 91 338 50 00 (Phone)

HOME PAGE: http://www.bde.es/

Jean Charles Bricongne

Banque de France ( email )

Paris
France

Guillaume Gaulier

Banque de France ( email )

Paris
France

Massimiliano Pisani

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Niki Papadopoulou

Independent ( email )

No Address Available

Brian Micallef

Central Bank of Malta - Modelling and Research Office ( email )

Valletta, 1060
Malta

Viktors Ajevskis

Bank of Latvia ( email )

Riga, 1050

Michal Brzoza-Brzezina

National Bank of Poland ( email )

00-919 Warsaw
Poland

Warsaw School of Economics (SGH)

aleja Niepodleglosci 162
PL-Warsaw, 02-554
Poland

Sandra Gomes

Bank of Portugal ( email )

Rua Francisco Ribeiro, 2
Lisbon, 1150-165
Portugal

Judit Kreko

Magyar Nemzeti Bank ( email )

Szabadsag ter 8-9
Budapest, H-1850
Hungary

Milan Vyskrabka

Independent ( email )

No Address Available

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