| Description |
1 online resource (95 pages) : color illustrations |
| Series |
IMF country report ; no. 16/220 |
|
IMF country report ; no. 16/220.
|
| Contents |
The impact of workforce aging on Euro Area productivity -- Investment firm size, and the corporate debt burden: a firm-level analysis of the Euro Area -- Options for a central fiscal capacity in the Euro Area -- Negative interest rate policy (NIRP): implications for monetary transmission and bank profitability in the Euro Area -- Comprehensive, more balanced policies to strengthen the Euro Area |
|
Several central banks in Europe have adopted a negative interest rate policy (NIRP) to achieve price stability and/or reduce appreciation pressures. Negative interest rates so far have had an overall positive impact, supporting easier financial conditions and contributing to a modest expansion in credit, demonstrating that the zero lower bound (ZLB) is less binding than previously thought, including with respect to central banks' signaling capacity. But looking ahead, further rates cuts when deposit rates remain sticky will lower bank profitability and may offset the benefits from higher asset prices and lower funding costs in a bank-dominated financial system. For the euro area, this suggests that further monetary accommodation should rely more on credit easing measures than on further lowering negative interest rates. -- Despite the strengthening recovery, the medium-term outlook for the euro area remains subdued. Growth is forecast at only a little over 1½ percent for the next five years and inflation at just 1.7 percent in 2021, with public debt and unemployment remaining at high levels for some time. Current accounts have improved for many countries, but external imbalances within the euro area remain sizeable and the growing surpluses of the large creditor countries are contributing to global imbalances. Slow progress in addressing crisis legacies combined with low inflation and growth leave the euro area vulnerable to shocks and risk of stagnation. The policy mix so far has relied heavily on monetary easing while policy buffers at the country level are limited, reflecting the large buildup of public debt in some countries |
| Summary |
This selected issues paper discusses the impact of workforce aging on productivity in the euro area. The euro area population has aged considerably over the past few decades, and the process is expected to accelerate in the years ahead. At the same time, labor productivity growth in the euro area has been sluggish, posing risks to long-term growth prospects. It is estimated that workforce aging could significantly retard total factor productivity (TFP) growth over the medium to long term. Given current demographic projections from the Organisation for Economic Co-operation and Development, the aging of the workforce in the euro area could lower TFP growth by about 0.2 percentage points each year between 2014 and 2035. Appropriate policies can, however, mitigate the adverse effects of aging. -- Corporate investment in the euro area fell markedly with the crisis and has remained weak. Drawing upon a large, cross-country panel dataset of firms' balance sheets and income statements, we investigate the microeconomic drivers of firms' investment choices, finding a negative relationship between a firm's debt and investment. This negative effect is greater for small and medium enterprises (SMEs) than large firms. Highly indebted firms are also found to be less responsive to demand. The results suggest that the weak euro area investment recovery may be partly due to corporate debt burdens, particularly at SMEs, which account for a large share of value-added in the euro area. -- A key proposal of The Five Presidents' Report is the establishment of a euro area treasury to enhance joint decision-making on fiscal policy. In practice, this implies creating a central fiscal capacity (CFC) at the euro area level. This paper outlines three options for the design of a CFC, focusing on the economic rationale and highlighting pros and cons of each option. The paper is descriptive, rather than normative, and aims to lay the groundwork for further dialogue on this subject. -- |
| Notes |
"July 2016." |
|
"June 22, 2016; approved by the European Department; prepared by S. Aiyar, A. Banerji, J. Bluedorn, C. Ebeke, K. Kang, H. Lin, A. Jobst, J. John, X. Shao, T. Wu (all EUR), and T. Poghosyan (FAD)"--Page 2 of pdf |
| Bibliography |
Includes bibliographical references |
| Notes |
Description based on online resource; title from pdf title page (IMF.org website, viewed August 17, 2016) |
| Subject |
Aging -- European Union countries
|
|
Industrial productivity -- European Union countries
|
|
Capital investments -- European Union countries
|
|
Corporate debt -- European Union countries
|
|
Fiscal policy -- European Union countries
|
|
Interest rates -- European Union countries
|
|
Economic development -- European Union countries
|
|
Aging.
|
|
Capital investments.
|
|
Corporate debt.
|
|
Economic development.
|
|
Fiscal policy.
|
|
Industrial productivity.
|
|
Interest rates.
|
|
European Union countries.
|
| Form |
Electronic book
|
| Author |
Aiyar, Shekhar, author, (IMF staff)
|
|
Banerji, Arup, author, (IMF staff)
|
|
Bluedorn, John C., author, (IMF staff)
|
|
Ebeke, Christian, author, (IMF staff)
|
|
Kang, Kenneth, author, (IMF staff)
|
|
Lin, Huidan, author, (IMF staff)
|
|
Jobst, Andreas, author, (IMF staff)
|
|
John, James (James A.), author, (IMF staff)
|
|
Shao, Xiaobo, author, (IMF staff)
|
|
Wu, Tao, author, (IMF staff)
|
|
Poghosyan, Tigran, author, (IMF staff)
|
|
International Monetary Fund, publisher.
|
|
International Monetary Fund. European Department, sponsor.
|
| ISBN |
9781498353694 |
|
149835369X |
|
