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Structural Reforms, Investment and Zero Lower Bound in a Monetary Union
Author(s) -
Gerali Andrea,
Notarpietro Alessandro,
Pisani Massimiliano
Publication year - 2015
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/manc.12120
Subject(s) - zero lower bound , economics , monetary economics , investment (military) , monetary policy , rest (music) , aggregate demand , macroeconomics , general equilibrium theory , medicine , cardiology , politics , political science , law
We assess the effects of competition‐friendly reforms on the zero lower bound ( ZLB ) on the monetary policy rate in a monetary union, using a dynamic general equilibrium model calibrated to two regions within the euro area ( EA ) and the rest of the world. Reforms simultaneously implemented in the entire EA favor an earlier exit from the ZLB if they generate sufficient short‐run inflationary effects. This happens if capital accumulation increases, magnifying the expansionary effects of reforms on permanent income and, thus, short‐run aggregate demand. If investment does not increase, the effects are not sufficient to reduce the ZLB duration.