Update: A version of this working paper has been accepted for publication in an upcoming issue of the Journal of Globalization and Development. A prepublication version, reposted with permission, is available here .
Stahler and Subramanian apply the Balassa-Samuelson-Penn (BSP) framework to compute measures of changes in the real competitiveness of European and other advanced economies after the recent global crisis. They find that competitiveness deteriorated in the euro area periphery countries between 2007 and 2013. Within the euro area, Germany has improved its competitiveness on their measure by 9 percent while Greece's competitiveness has deteriorated by 9 percent. Real competitiveness changes are strongly correlated with nominal exchange rate changes, which suggests the importance of having a flexible (and preferably independent) currency for bringing about external adjustments. Internal devaluation—defined as real competitiveness improvements in excess of nominal exchange rate changes—is theoretically possible but seems limited in scope and magnitude in practice, even under the stringent restrictions of the euro area at present.
Data disclosure: The data underlying this analysis are available for download as a zip file. It contains Excel (WP14-10.xlsx) and Stata (WP14-10.dta) versions of the dataset, and the Stata .do file (WP14-10.do), which contains model parameters that reproduce all statistical output.