Forward-looking behavior on the part of the monetary authority leads least squares estimates to understate the true growth consequences of monetary policy interventions. We present instrumental variables estimates of the impact of interest rates on real output growth for several European...

While unemployment rates in Europe declined after the global financial crisis until 2018/19, the incidence of long-term unemployment, the share of people who have been unemployed for more than one year to the total unemployed, remained high. Moreover, the COVID-19 pandemic could aggravate the...

Using the IMF''s Global Economic Model, calibrated to the European Union, the effects of reform in product and labor markets are quantified for both a large and a small euro area economy. When markups in these markets are reduced, there are sizable long-term gains in output and employment. Most...

We build a factor-augmented interacted panel vector-autoregressive model of the Euro Area (EA) and estimate it with Bayesian methods to compute government spending multipliers. The multipliers are contingent on the overall monetary policy stance, captured by a shadow monetary policy rate. In the...

Wage rises have remained stubbornly low in advanced Europe in recent years, but, at the same time, newer EU members are experiencing rapid wage acceleration. This paper investigates the drivers of this wage divergence. Econometric analysis using error correction models suggests that wage growth...

We argue that in an economy with downward nominal wage rigidity, the output gap is negative on average. Because it is more difficult to cut wages than to increase them, firms reduce employment more during downturns than they increase employment during expansions. This is demonstrated in a simple...

We study the properties of the IMF-WEO estimates of real-time output gaps for countries in the euro area as well as the determinants of their revisions over 1994-2017. The analysis shows that staff typically saw economies as operating below their potential. In real time, output gaps tend to have...

This paper examines the drivers, and reestimates the size of shadow economies in Europe, with a focus on the emerging economies, and recommends policies to increase formality. The size of shadow economies declined across Europe in recent years but remains significant, especially in Eastern...

This paper investigates the developments in house price synchronization across countries by a dynamic factor model using a country- and city-level dataset, and examines what drives the synchronization. The empirical results indicate that: (i) the degree of synchronization has been rising since...

While the Heckscher-Ohlin-Vanek (HOV) theorem has been a dominant paradigm in trade theory, the empirical evidence to support it has been weak. This paper develops a modified HOV model that allows technologies to differ across countries. The revised model significantly improves the theory’s...