The Department of Economics cordially invites you to the Economics Research Seminar (Department Seminar)

on Wednesday, May 24^th,

with Harald Fadinger (University of Mannheim)

on "Quantifying the Germany Shock: Domestic Reforms, Nominal Rigidities and Trade Spillovers in the Eurozone"

Abstract: We analyze the impact of the increase in German competitiveness that followed the introduction of the Euro. We first provide broad reduced-form evidence supporting the view that German labor-market reforms in the late 90s and early 2000s led to an increase in German labor supply, a decline in German real wages, an increase in manufacturing exports relative to those of other Eurozone economies and a crowding-out of their manufacturing exports and employment. We then build a quantitative multi-sector trade model that features downward nominal wage rigidities, endogenous labor supplies, unemployment-insurance benefits and international savings to assess the impact of the German competitiveness shock. In the model, the fixed nominal exchange rate may make nominal ridigities binding in response to foreign real shocks such as those implied by German labor-market reforms. This induces a large contraction of manufacturing sectors and significant involuntary unemployment in other Eurozone economies. Finally, we consider a number of counterfactual scenarios, such as the impact of German labor-market reforms in the absence of a fixed exchange-rate regime, the role of the German savings glut and coordinated labor market reforms within the Eurozone.

Date: Wednesday, May 24^th

Time: 4.30 to 6 pm (CET)

Location: building D4, ground floor, room D4.0.144