Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/129976
Authors: 
Bettendorf, Timo
León-Ledesma, Miguel A.
Year of Publication: 
2015
Series/Report no.: 
School of Economics Discussion Papers 1510
Abstract: 
German labor market reforms in the 1990s and 2000s are generally believed to have driven the large increase in the dispersion of current account balances in the Euro Area. We investigate this hypothesis quantitatively. We develop an open economy New Keynesian model with search and matching frictions from which we derive robust sign restrictions for a wage bargaining shock. We then impose these restrictions on a Global VAR consisting of Germany and 8 EMU countries to identify a wage bargaining shock in Germany. Our results show that, although the German current account was significantly affected by wage bargaining shocks, their contribution to European current account imbalances was negligible. We conclude that the reduction in bargaining power of German unions after labor market reforms cannot be the lone driver of European imbalances.
Subjects: 
European imbalances
German wage moderation
DSGE
Global VAR
sign restrictions
JEL: 
F10
F32
F41
Document Type: 
Working Paper

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