Deleveraging, deflation and depreciation in the euro area
- Author(s)
- Martin Wolf, Gernot Müller, Dmitry Kuvshinov
- Abstract
During the post-crisis period, economic performance has been highly heterogenous across the euro area. While some economies rebounded quickly after the 2009 output collapse, others are undergoing a protracted further decline as part of an extensive deleveraging process. At the same time, inflation has been subdued throughout the whole of the euro area and intra-euro-area exchange rates have hardly moved. We interpret these facts through the lens of a two-country model of a currency union. We find that deleveraging in one country generates deflationary spillovers which cannot be contained by monetary policy, as it becomes constrained by the zero lower bound. As a result, the real exchange rate response becomes muted, and the output collapse—concentrated in the deleveraging economies.
- Organisation(s)
- Department of Economics
- External organisation(s)
- Eberhard Karls Universität Tübingen, Rheinische Friedrich-Wilhelms-Universität Bonn
- Journal
- European Economic Review
- Volume
- 88
- Pages
- 42-66
- No. of pages
- 25
- ISSN
- 0014-2921
- DOI
- https://doi.org/10.1016/j.euroecorev.2016.02.018
- Publication date
- 09-2016
- Peer reviewed
- Yes
- Austrian Fields of Science 2012
- 502053 Economics
- Keywords
- ASJC Scopus subject areas
- Economics and Econometrics, Finance
- Portal url
- https://ucris.univie.ac.at/portal/en/publications/deleveraging-deflation-and-depreciation-in-the-euro-area(ec823768-7506-407b-babb-c0faf3859cdb).html