Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/69533 
Year of Publication: 
2013
Series/Report no.: 
CESifo Working Paper No. 4082
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
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.
Subjects: 
real exchange rate
Balassa-Samuelson effect
product market regulations
employment protection
JEL: 
F41
J50
L40
Document Type: 
Working Paper
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