Bubble economics and structural change: the cases of Spain and France compared. Issue 1 (2nd January 2018)

• Record Type: Journal Article
• Authors: Agnese, Pablo; Hromcová, Jana
• Is Part Of: Journal of economic policy reform. Volume 21:Issue 1(2018)
• Page Start: 59
• Page End: 79
• Publication Date: 2018-01-02
• Subjects: structural change -- bubble -- unemployment -- interest rate -- productivity; J64 -- O57; Economic policy -- Periodicals; Commercial policy -- Periodicals; Monetary policy -- Periodicals; International trade -- Periodicals; Developing countries -- Economic policy -- Periodicals; Former Soviet republics -- Economic policy -- Periodicals; Post-communism -- Periodicals; Policy sciences -- Periodicals; 338.9
• DOI: 10.1080/17487870.2016.1213167
• Languages: English
• ISSNs: 1748-7870

Abstract

Abstract : This paper delves into the recent events that led to the formation of the housing bubble in Spain and the resulting structural change that is arguably needed to put the economy back into the right track. For this purpose, we calibrate a model with different equilibria descriptive of the labor markets in Spain and France, where the unemployment rates went from the same initial spot to very different levels. In addition to this, we run a counterfactual analysis that throws some more light on the performance of the Spanish labor market and the housing bubble. Our results suggest that the unemployment rate in Spain has jumped to much higher levels while switching between equilibria or, what is the same, because of structural change. Moreover, our counterfactuals indicate that, first, there has been an important misdirection of resources into the construction industry mainly fueled by excessively low real interest rates and, second, the Spanish labor reform has fallen short of its own goals.