{
  "title": "Market Regulation, Cycles and Growth in a Monetary Union",
  "publication": "IMF Working Papers, June 3, 2019",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2019/06/03/market-regulation-cycles-and-growth-in-a-monetary-union-46732",
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  "summary": "We build a two-country currency union DSGE model with endogenous growth to assess the role of cross-country differences in product and labor market regulations for long-term growth and for the adjustment to shocks.",
  "sections": [
    {
      "heading": "Model and approach",
      "content": "- Built a two-country currency union DSGE model with endogenous growth to assess the role of cross-country differences in product and labor market regulations for:\n  - long-term growth, and\n  - the adjustment to shocks.\n- Emphasis on endogenous TFP movements as a channel through which large shocks operate."
    },
    {
      "heading": "Key findings",
      "content": "- With endogenous growth, there is no reason to expect real income convergence.\n- Large shocks, through endogenous TFP movements, can lead to permanent changes of:\n  - output, and\n  - real exchange rates.\n- Differences in outcomes are exacerbated when member countries have different product and labor market regulations.\n- Less regulated economies are likely to:\n  - have higher trend growth, and\n  - recover faster from negative shocks.\n- Results are consistent with observed outcomes in the euro area: higher inflation, lower employment and disappointing TFP growth rates experienced in the less reform-friendly euro area members."
    },
    {
      "heading": "Policy implications and interpretation",
      "content": "- Cross-country heterogeneity in product and labor market regulation matters for both long-run growth and cyclical adjustment within a monetary union.\n- Reforms that reduce regulation can be associated with higher trend growth and faster recoveries from negative shocks, implying potential trade-offs for reform policy in currency unions."
    },
    {
      "heading": "Subject areas and keywords (as provided)",
      "content": "- Subject: Commodity markets, Financial markets, Inflation, Labor, Labor markets, National accounts, Prices, Production, Return on investment, Total factor productivity\n- Keywords: business cycle, Commodity markets, Currency union, endogenous growth, Inflation, labor and product market regulation, labor market, Labor markets, Northern Europe, product market regulation, R&D investment, Return on investment, risk premium shock, Southern Europe, TFP dynamics, Total factor productivity, WP\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2019/06/03/market-regulation-cycles-and-growth-in-a-monetary-union-46732"
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    "Authors: Mirko Abbritti, Sebastian Weber",
    "Published: June 3, 2019",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781498311489.001",
    "Built a two-country currency union DSGE model with endogenous growth to assess the role of cross-country differences in product and labor market regulations for:",
    "Emphasis on endogenous TFP movements as a channel through which large shocks operate.",
    "With endogenous growth, there is no reason to expect real income convergence.",
    "Large shocks, through endogenous TFP movements, can lead to permanent changes of:",
    "Differences in outcomes are exacerbated when member countries have different product and labor market regulations.",
    "Less regulated economies are likely to:",
    "Results are consistent with observed outcomes in the euro area: higher inflation, lower employment and disappointing TFP growth rates experienced in the less reform-friendly euro area members.",
    "Cross-country heterogeneity in product and labor market regulation matters for both long-run growth and cyclical adjustment within a monetary union.",
    "Reforms that reduce regulation can be associated with higher trend growth and faster recoveries from negative shocks, implying potential trade-offs for reform policy in currency unions.",
    "Subject: Commodity markets, Financial markets, Inflation, Labor, Labor markets, National accounts, Prices, Production, Return on investment, Total factor productivity",
    "Keywords: business cycle, Commodity markets, Currency union, endogenous growth, Inflation, labor and product market regulation, labor market, Labor markets, Northern Europe, product market regulation, R&D investment, Return on investment, risk premium shock, Southern Europe, TFP dynamics, Total factor productivity, WP",
    "**Working Paper**"
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