Heterogeneous Effects of Competitiveness Shocks on Macroeconomic Performance Across Euro Area Countries

19 Pages Posted: 30 Jan 2019

See all articles by Karsten Staehr

Karsten Staehr

Tallinn University of Technology (TUT) - Department of Finance and Economics; Bank of Estonia

Robert Vermeulen

De Nederlandsche Bank

Date Written: January 2019

Abstract

This paper considers how competitiveness impacts macroeconomic performance in 11 euro area countries. VAR models are estimated for the individual countries using quarterly data from 1995Q4 to 2013Q4. Besides unit labour costs as a competitiveness measure, the models include GDP, the current account balance and domestic credit. The empirical analyses show that changes in unit labour costs help explain GDP dynamics in the short and medium term in most countries, whereas they have little explanatory power for the current account balance or domestic credit for most countries. Overall, the effects of the unit labour costs vary substantially across the countries in the euro area. The heterogeneity suggests that policy measures aiming to improve economic growth, correct current account imbalances and ensure financial stability need to take country‐specific features into account.

Keywords: competitiveness, euro area, macroeconomic performance, shock transmission

Suggested Citation

Staehr, Karsten and Vermeulen, Robert, Heterogeneous Effects of Competitiveness Shocks on Macroeconomic Performance Across Euro Area Countries (January 2019). The World Economy, Vol. 42, Issue 1, pp. 68-86, 2019, Available at SSRN: https://ssrn.com/abstract=3325386 or http://dx.doi.org/10.1111/twec.12675

Karsten Staehr (Contact Author)

Tallinn University of Technology (TUT) - Department of Finance and Economics ( email )

Akadeemia tee 3-486
Tallinn, 12618
Estonia

HOME PAGE: http://www.ttu.ee/karsten-staehr

Bank of Estonia ( email )

Estonia Building 13
Tallinn, 15095
Estonia

Robert Vermeulen

De Nederlandsche Bank ( email )

P.O. Box 98
1000 AB Amsterdam
Netherlands

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