Price competitiveness misalignments in a country relative to “equilibrium” levels consistent with its macroeconomic fundamentals signal the presence of external imbalances. The study documents the recent revisions of the methodology used in the Bank of Italy to estimate these deviations. Then, it reports the estimates obtained for the four major euro-area economies and for the euro area as a whole.
The methodological revisions undertaken do not change the qualitative interpretation of price competitiveness imbalances observed since 1999. For the first half of 2019 (latest period available) the model does not signal significant misalignments in Italy and in the euro area as a whole, a result which suggests an absence of external imbalances, whereas for France, Germany and Spain there is evidence of a moderate price competitiveness indicator undervaluation relative to the level consistent with their economic fundamentals.
