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Labour Markets and Monetary Union: A Strategic Analysis

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  • Cukierman, Alex
  • Lippi, Francesco

Abstract

This paper shows that the effects of a monetary union depend on several labour market features. In particular, the switch from national monetary policies to a common monetary policy usually affects both inflation and unemployment, even when all structural parameters of the economy and of unions' and policymakers' preferences remain the same. The benchmark case of a monetary union between identical countries suggests that the switch to a monetary union is likely to make labour unions more aggressive, increasing unemployment. Qualifications to this result are provided under alternative institutional scenarios, like cross-country asymmetries, (pre-union) ERM membership and wage leadership.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 111 (2001)
Issue (Month): 473 (July)
Pages: 541-65

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Handle: RePEc:ecj:econjl:v:111:y:2001:i:473:p:541-65

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  1. Michael C. Burda, 2001. "European Labour Markets and the Euro: How Much Flexibility Do We Really Need?," Economics Working Papers 003, European Network of Economic Policy Research Institutes.
  2. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  3. Oswald, Andrew J, 1982. "The Microeconomic Theory of the Trade Union," Economic Journal, Royal Economic Society, vol. 92(367), pages 576-95, September.
  4. Cukierman, A. & Lippi, F., 1998. "Central Bank Independence, Centralization of Wage Bargaining, Inflation and Unemployment - Theory and Some Evidence," Discussion Paper 1998-116, Tilburg University, Center for Economic Research.
  5. Calmfore, L., 1993. "Centralization of Wage Bargaining and Macroeconomic Performance - A Survey," Papers 536, Stockholm - International Economic Studies.
  6. repec:wop:humbsf:1999-41 is not listed on IDEAS
  7. Lippi, F., 2000. "Strategic Monetary Policy with Non-Atomistic Wage-Setters," Papers 374, Banca Italia - Servizio di Studi.
  8. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
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  10. Guzzo, Vincenzo & Velasco, Andres, 1999. "The case for a populist Central Banker," European Economic Review, Elsevier, vol. 43(7), pages 1317-1344, June.
  11. Gruner, Hans Peter & Hefeker, Carsten, 1999. " How Will EMU Affect Inflation and Unemployment in Europe?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(1), pages 33-47, March.
  12. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
  13. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
  14. Agell, Jonas & Ysander, Bengt-Christer, 1993. "Should Governments Learn to Live with Inflation? Comment," American Economic Review, American Economic Association, vol. 83(1), pages 305-11, March.
  15. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  16. Sibert, Anne & Sutherland, Alan, 2000. "Monetary union and labor market reform," Journal of International Economics, Elsevier, vol. 51(2), pages 421-435, August.
  17. Skott, Peter, 1997. "Stagflationary Consequences of Prudent Monetary Policy in a Unionized Economy," Oxford Economic Papers, Oxford University Press, vol. 49(4), pages 609-22, October.
  18. Gylfason, Thorvaldur & Lindbeck, Assar, 1994. " The Interaction of Monetary Policy and Wages," Public Choice, Springer, vol. 79(1-2), pages 33-46, April.
  19. Jensen, Henrik, 1997. " Monetary Policy Cooperation May Not Be Counterproductive," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(1), pages 73-80, March.
  20. Lippi, Francesco, 1999. "Strategic Monetary Policy with Non-Atomistic Wage Setters: A Case for Non-Neutrality," CEPR Discussion Papers 2218, C.E.P.R. Discussion Papers.
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