The Impact of Market Regulations on Intra-European Real Exchange Rates

30 Pages Posted: 6 Feb 2013

See all articles by Agnès Bénassy-Quéré

Agnès Bénassy-Quéré

Paris School of Economics (University Paris 1)

Dramane Coulibaly

Centre d'Etudes Prospectives et d'Info. Internationales (CEPII); Université Paris X Nanterre

Date Written: January 31, 2013

Abstract

We study the contribution of market regulations in the dynamics of the real exchange rate within the European Union. Based on a model proposed by De Gregorio et al. (1994a), we show that both product market regulations in nontradable sectors and employment protection tend to inflate the real exchange rate. We then carry out an econometric estimation for European countries over 1985-2006 to quantify the contributions of the pure Balassa-Samuelson effect and those of market regulations in real exchange-rate variations. Based on this evidence and on a counter-factual experiment, we conclude that the relative evolution of product market regulations and employment protection across countries play a very significant role in real exchange-rate variations within the European Union and especially within the Euro area, through theirs impacts on the relative price of nontradable goods.

Keywords: real exchange rate, Balassa-Samuelson effect, product market regulations, employment protection

JEL Classification: F410, J500, L400

Suggested Citation

Benassy-Quere, Agnes and Coulibaly, Dramane and Coulibaly, Dramane, The Impact of Market Regulations on Intra-European Real Exchange Rates (January 31, 2013). CESifo Working Paper Series No. 4082, Available at SSRN: https://ssrn.com/abstract=2212084 or http://dx.doi.org/10.2139/ssrn.2212084

Agnes Benassy-Quere (Contact Author)

Paris School of Economics (University Paris 1) ( email )

106-112 boulevard de l'Hopital
Paris, F-75013
France
+33 1 44 07 82 19 (Phone)

HOME PAGE: http://www.parisschoolofeconomics.com/benassy-quere-agnes/agnesb.html

Dramane Coulibaly

Université Paris X Nanterre ( email )

92, av. de la République, Nanterre
Room G301, Building G
Paris, Nanterre Cedex 92001
France

Centre d'Etudes Prospectives et d'Info. Internationales (CEPII)

France

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