Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/195584
Authors: 
Hochmuth, Brigitte
Moyen, Stephane
Stähler, Nikolai
Year of Publication: 
2019
Series/Report no.: 
Bundesbank Discussion Paper No. 13/2019
Abstract: 
How do labor market reforms affect international competitiveness and net foreign assets? To answer this question, we build a two-region RBC model with labor market frictions, idiosyncratic consumption risk, and limited cross-sectional heterogeneity to establish a direct link between labor market reforms and changes in net foreign assets via a precautionary savings channel. We apply the model to simulate far-reaching labor market reforms in Germany during the mid-2000s. We find that reducing the generosity of unemployment benefits decreases wages, fosters employment and augments competitiveness as well as trade. In addition, we can explain a significant share of the observed increase in German net foreign assets. A standard representative agent framework is not able to generate any notable effects on net foreign assets and the current account.
Subjects: 
unemployment benefits reform
current account imbalances
precautionary savings
Hartz reform
JEL: 
E21
E24
F16
F41
ISBN: 
978-3-95729-578-1
Document Type: 
Working Paper

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