Current-account rebalancing and international transfers (immaculate or not)
Giancarlo Corsetti, Philippe Martin, Paolo Pesenti, 31 January 2013
Current-account imbalances in Europe are at the heart of the crisis .This column argues that relative price adjustment need not be as dramatic as some observers claim. In order to foster rebalancing, policy should target obstacles to firms’ entry, startup costs, and the incentives for product differentiation, letting relative prices and wages adjust in equilibrium. Setting up firms and new production lines is costly and in the current circumstances, policy should also address tight credit constraints on investment and firms’ activity.