Do Labour Market Reforms Achieve a Double Dividend under EMU? Discretionary versus Rule-based Monetary Policy Revisited
AbstractHigh equilibrium unemployment and the inflation bias in some EU countries require fundamental reforms of labour-market institutions. Impacts of different monetary regimes inside and outside EMU on the incentives for labour- market reforms are examined in a Barro- Gordon framework from the perspective of a single country. Monetary policy (discretionary versus rule-based) and the degree of labour-market reforms are determined simultaneously. It can be shown that discretionary policy outside EMU leads to a higher degree of reforms than rulebased policy since in the former case reforms reduce both unemployment and the inflation bias. However, rule-based monetary policy inside EMU limits the bene - fits of reforms to a positive impact on employment. Nevertheless, total economy welfare under EMU is superior to the one under discretionary policy. Insofar as a superior instrument is available for the parallel reduction of the equilibrium inflation rate, namely a strict monetary policy rule, the higher degree of labourmarket reforms under discretionary monetary policy outside EMU only signals a kind of an overshooting.
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Bibliographic InfoArticle provided by Center for Economic Integration, Sejong University in its journal Journal of Economic Integration.
Volume (Year): 14 (1999)
Issue (Month): ()
European Monetary Union; inflation bias; labor market reform; monetarypolicy regime; political economy of structural unemployment;
Find related papers by JEL classification:
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
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- Belke, Ansgar & Herz, Bernhard & Vogel, Lukas, 2005.
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