For the competition, the following topic has been identified:
‘Crisis Effects: Growth Prospects, Social Impact and Policy Responses in SEE and CIS’
The main hypothesis to be tested is the following: The crisis shock introduces structural breaks in the distribution (e.g. increase of inequality) across different dimensions conditional on the change in potential speed of growth, the quality of development, and the induced or adopted policy changes.
The areas of research are the following:
· Macroeconomic effects: Financial flows and inequality; Distributional effects of public spending; Intergenerational justice and investments
· Microeconomic effects: Crisis effects on income and poverty
· Policy response: Incomes policy; Fiscal policy; Monetary policy
· Improving labour market institutions: Wage setting process; Organisation of vocational training and skill upgrading; Potentials for improved social partnership
· Political economy implications: Including social responses and institutional changes
The following project has been financed throughout this scheme during 2011 and 2012:
A hemlock for policy response: Monetary policy and wage bargaining responses in SEE and CIS during the crisis
The objective of this research is to analyse monetary-policy and wage responses in South-eastern Europe and the Commonwealth of Independent States during the recent economic crisis. Majority of these countries are constrained by rigid exchange-rate arrangements which limit the space for monetary-policy reactions in times of crisis. In such episodes they face interest-rate soaring and official-reserves intervention in order to maintain the chosen exchange-rate parity. In addition, part of these countries face still strong unions which prevents wages to decline when the economy contracts, and in turn exerts further pressure onto monetary policy against interest-rate easing. To pursue the objective, the research will employ a New Keynesian model with wage and price rigidities. Nineteen countries will be analysed over the period 2001:M1-2011:M3, using panel techniques. We expect to find that monetary policy in countries with fixed exchange rate will respond less to real-economy developments (output and inflation), than in countries with flexible exchange rate. Then, we expect that countries with higher unionisation will have stronger relationship between the output gap and the wage growth, but that this relationship will weaken (or maybe disappear) in the crisis period. In addition, we expect that in countries will stronger unions, the downward wage resistance will put further burden on monetary-policy conduct.