Internal devaluations have been suggested as a possible policy option for countries in a currency union facing large external deficits. These policy actions seek to restore competitiveness by replicating the outcomes of an external devaluation. This column examines wage moderation as a potential means of internal devaluation for EZ countries. If pursued by several countries, wage moderation can work if monetary policy is not constrained by the zero lower bound, or if supported by quantitative easing. Without sufficient monetary accommodation, it will not deliver much of a boost to output, and may hurt overall EZ output.
Jörg Decressin, Prakash Loungani, 02 December 2015
Marco Buti, Maria Demertzis, João Nogueira Martins, 30 March 2014
Although progress has been made on resolving the Eurozone crisis – vulnerable countries have reduced their current-account deficits and implemented some reforms – more still needs to be done. This column argues for a ‘consistent trinity’ of policies: structural reforms within countries, more symmetric macroeconomic adjustment across countries, and a banking union for the Eurozone.
Most Read
Blogs&Reviews
Vox eBooks
Baldwin, Weder di Mauro, 18 March 2020
Events
-
8 - 8 April 2020 / /
-
20 - 23 April 2020 / Guildford, Surrey, UK / University of Surrey
-
23 - 23 April 2020 / Madrid, Spain / IE Business School
-
23 - 24 April 2020 / Bratislava, Slovakia / National Bank of Slovakia in cooperation with CompNet
-
8 - 9 May 2020 / Princeton, NJ / International Economics Section at the Department of Economics of Princeton University
