Panagiotidis, T., "European Trade and Growth Imbalances: A Sign-Restriction GVAR Analysis"
March 23, 2023
Title: “European Trade and Growth Imbalances: A Sign-Restriction GVAR Analysis”
Speaker: Professor Theodore Panagiotidis, Department of Economics, University of Macedonia
Host: Professor George Economides, Department of International and European Economic Studies, Athens University of Economics and Business
Time: 15.30 -17.00
Attachments: PDF of Relevant Paper
Abstact: The accumulated, persistent trade and economic imbalances between the South euro area (SEA) and the North euro area (NEA) countries brought about severe strains for the euro following the global financial crisis of 2008. This paper assesses alternative scenarios suggested to restore the trade imbalances within the euro area. We employ a structural Bayesian Global VAR in which theory-consistent long- and short-run restrictions are imposed. Empirical results show that a depreciation of the SEA real exchange rate and/or a reduction of the SEA unit labor cost can lead to an improvement of the SEA trade balance through an increase in exports. Evidence also emerges that a negative demand shock in the SEA can also ameliorate the SEA trade balance by boosting exports and reducing imports. Among the policies that could restore trade imbalances in the SEA, austerity is less painful in terms of adjustment to long-run equilibrium. Counterfactual analysis signal that if policies – improved competitiveness and/or austerity in SEA – were pursued prior to 2010 the European debt crisis could have been averted. Finally, a simple loss function exercise shows that a persistent contractionary demand shock in SEA will maximize the welfare of pan-European social-welfare planer-policy maker.