Wage dynamics and current account rebalancing in the euro area

Using the NiGEM model, the authors show that a wage moderation in the “deficit” countries of the euro area –i.e. lowering the annual growth rate of wages by one percentage point over a five year horizon– would improve their current account balances by 0.2 to 0.3 percentage points of GDP. The impact would be greater if the wage moderation in the “deficit” euro area countries were accompanied by a simultaneous and symmetrical wage increase in the area’s surplus countries.