Why It Pays to Synchronize Structural Reforms in the Euro Area Across Markets and Countries

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Abstract: Simulations with the IMF’s Global Economy Model, calibrated to the European Union, suggest that there are sizable long-term gains in output and employment from boosting competition in product and labor markets. Coordinating reforms across these markets in a given country is found to be beneficial: it reduces transition costs in the short run and generates synergies in the long run. However, to prevent a temporary fall in euro area consumption, synchronization across countries is needed if they are to benefit from a monetary policy reaction. [JEL C53, E52, F47]