Recovery, growth and welfare in Europe: structural changes and challenges for fiscal, monetary and macroprudential policies

Recovery, growth and welfare in Europe: structural changes and challenges for fiscal, monetary and macroprudential policies


Javier Andrés Domingo
Javier Ferri Carreres

(Universitat de València, IEI)



Our economies face the challenge of recovery after two deep recessions, with very weak public finances and a monetary policy with little room for maneuver. This project proposes three lines of research with the aim of helping to improve the design of the appropriate stability policies in these complex circumstances, the end of which is not in sight in the short term. The team of researchers has a solid expertise in the analysis and design of macroeconomic policies fundamentally, although not exclusively, within the framework of dynamic and general equilibrium models, both theoretical and estimated. In this project we will develop models with different types of households (according to their employment situation, their financial balance sheets), companies (according to their efficiency and/or size), and even countries, in this case depending on the situation of their public finances. We will adapt our instruments to study the effect on macroeconomic stability and welfare of some global trends such as the consequences of the Covid 19 crisis, the energy transition, the digital transformation and the increase in inequality in some countries.

First, we will study the implications for monetary policy, inflation and macroeconomic stability of industrial polarization, heterogeneity in household finances and changes in the financial structure. Some of these structural changes are relatively recent, but others go back a long way, although only the availability of very complete microdata bases has allowed us to understand them in depth recently. But all of them have the capacity to fundamentally change the transmission mechanism of shocks and policies, particularly monetary stimuli, to the real economy.

Secondly, we will address the study of fiscal policy in the European Union. This policy has acquired a major role in recent years and will have to be developed in the future in very difficult conditions to cope with the Covid-19 crisis, first, and then with the necessary fiscal adjustment in some economies. We plan to complete the macroeconomic models that we currently use with the introduction of various forms of heterogeneity and inequality among households, as well as the concept of Fiscal Limit, as an effective constraint on the public sectors borrowing capacity, and elements of a Fiscal Union, in which the countries start from very heterogeneous conditions regarding the sustainability of their public finances.

Thirdly, we will analyze the opportunities for recovery in the context of the investments that the European economies will undertake aimed at improving human capital, adapting to technological changes and promoting the transition towards an environmentally sustainable

economy. We will analyze the effect on economic fluctuations and macroeconomic policies of the coronavirus pandemic, the energy transition and technological changes, especially the advancement of robotics. With a more medium-term perspective, we will also study the impact of this set of factors on welfare, defined in a broad sense that goes beyond consumption to include indicators of inequality, environmental deterioration, and health among others.

Research team

Javier Andrés (Universitat de València, IEI)
José E. Boscá (Universitat de València, IEI)
Rafael Doménech (Universitat de València, IEI)
Javier Ferri (Universitat de València, IEI)
José Ramón García (Universitat de València)
Carles Bretó (Universitat de València)
Margarita Rubio (University of Nottingham)
Cristina Fuentes (Board of Governors of the Federal Reserve, USA)

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