PORTFOLIO.HU | Blanchard: Eurozone integration needs to go forward or go back, but it can't stay here - 0 views
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And, while lower investment since the beginning of the crisis has led to a smaller capital stock, again the effect appears quantitatively small. It is also difficult to see why the crisis would have led to a large decrease in total factor productivity. This being said, I would have expected a large output gap to lead to more downward pressure on inflation than we have seen. I see the fact that inflation is roughly stable is a puzzle. We are doing more research on this issue at the IMF.
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O.B.:There is no question internal devaluations are tougher to achieve than when you can adjust the nominal exchange rate. That’s well understood. A number of European countries have a competitiveness problem, which shows up in a large current account deficit.
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olve it. And there is no alternative for them than to become more competitive, to decrease the real exchange rate. Is it happening? I think it’s starting to happen, but it’s happening slowly, and it’s going to take a long time.
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