Labor Market Reforms and Current Account Imbalances - Beggar-Thy-Neighbor Policies in a Currency Union?

42 Pages Posted: 8 Feb 2015

See all articles by Timo Baas

Timo Baas

University of Duisburg-Essen - Department of Economics and Business Administration

Ansgar Hubertus Belke

University of Duisburg-Essen - Department of Economics and Business Administration; IZA Institute of Labor Economics; Centre for European Policy Studies

Multiple version iconThere are 2 versions of this paper

Date Written: September 6, 2014

Abstract

Member countries of the European Monetary Union (EMU) initiated wideranging labor market reforms in the last decade. This process is ongoing as countries that are faced with serious labor market imbalances perceive reforms as the fastest way to restore competitiveness within a currency union. This fosters fears among observers about a beggar-thy-neighbor policy that leaves non-reforming countries with a loss in competitiveness and an increase in foreign debt. Using a two-country, two-sector search and matching DSGE model, we analyze the impact of labor market reforms on the transmission of macroeconomic shocks in both, non-reforming and reforming countries. By analyzing the impact of reforms on foreign debt, we contribute to the debate on whether labor market reforms increase or reduce current account imbalances.

Keywords: Current account deficit; labor market reforms; DSGE models; search and matching labor market

JEL Classification: E24, E32, J64, F32

Suggested Citation

Baas, Timo and Belke, Ansgar Hubertus, Labor Market Reforms and Current Account Imbalances - Beggar-Thy-Neighbor Policies in a Currency Union? (September 6, 2014). Ruhr Economic Paper No. 505, Available at SSRN: https://ssrn.com/abstract=2561313 or http://dx.doi.org/10.2139/ssrn.2561313

Timo Baas (Contact Author)

University of Duisburg-Essen - Department of Economics and Business Administration ( email )

Universitätsstr. 9
Essen, 45141
Germany

Ansgar Hubertus Belke

University of Duisburg-Essen - Department of Economics and Business Administration ( email )

Universitätsstr. 9
Essen, 45141
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for European Policy Studies ( email )

1 Place du Congres, 1000
Brussels, 1000
Belgium

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
49
Abstract Views
465
PlumX Metrics