2022/12/30 by Luisa Lambertini, Christian Proebsting · 1 voice
Economics, Econometrics and Finance · #Global Financial Crisis and Policies #Italy: Economic History and Contemporary Issues #Monetary Policy and Economic Impact
paper · doi:10.1257/mac.20200470
openalex publication_date 2022/12/30 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/21
The hoped-for silver lining of euro-area austerity programs was to raise external competitiveness and improve current accounts. Using product- and industry-level data for 12 countries over the period 1999–2018, we show that reductions in government spending reduce prices and wages but only for products with low import content and industries with low export shares. This leads to asymmetric expenditure switching, with net exports improving through lower imports rather than higher exports. The standard small-open-economy model fails to rationalize these findings, but home bias in government spending and frictions preventing factor prices from equalizing across sectors considerably improve the fit of the model. (JEL E31, E62, F14, F33, F45, H20, H50)