EconPol Policy Reports

Cover EconPol Policy Report 3/2017

The Nature of Shocks in the Eurozone and Their Absorption Channels

Cinzia Alcidi, Mathias Dolls, Clemens Fuest, Carla Krolage and Florian Neumeier

We investigate the degree of (a)symmetry of macroeconomic fluctuations within the euro area (EA). Our findings indicate, first, a high degree of co-movement of cyclical GDP across EA member states. However, the amplitudes of national business cycles appear to vary notably, meaning that booms and recessions differ with regard to their severity across EA member states. Second, the co-movement of cyclical unemployment is somewhat less pronounced than that of cyclical GDP and the sensitivity to common shocks is even more heterogeneous, suggesting that differences in labour market conditions play an important role with regard to the vulnerability to common shocks. Turning to potential stabilization mechanisms, we find that in general, the private sector has a huge potential to absorb asymmetric shocks. However, in international comparison, the shock-absorption capacity of the private sector in the EA is rather weak. Recent evidence suggests that promoting capital market integration may improve the private sector’s shock absorption capacity.

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 Cover EconPol Policy Report 02 2017

The German current account surplus: where does it come from, is it harmful and should Germany do something about it?

Gabriel Felbermayr, Clemens Fuest and Timo Wollmershäuser

In the international economic policy debate Germany is criticized heavily for its current account surplus. This paper describes the factors that have led to the surplus and discusses the policy implications. The current account surplus is mainly a result of higher savings, driven by an ageing population. The claim that the German surplus causes economic damage either in Germany or in other countries is not well founded. But Germany faces growing political pressures related to the threat of protectionism, the risk that a growing creditor position may lead to political backlash, and the fact that European Macroeconomic Imbalances Procedures imply that current account surpluses should not exceed six percent of GDP. To reduce the surplus Germany should focus on a corporate tax reform to boost private investment.

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Cover EconPol Policy Report 1/2017

The Future of Eurozone Fiscal Governance

Anne-Laure Delatte, Clemens Fuest, Daniel Gros, Friedrich Heinemann, Martin Kocher and Roberto Tamborini

EconPol Europe’s first policy report discusses various options for reforming fiscal governance in the Eurozone. The authors focus on two possible reform approaches referred to as the ‘Maastricht model’ and the ‘US model’. They argue that certain elements of the two approaches could be combined to achieve a more resilient and economically successful Eurozone.

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