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Has EMU had any Impact on the Degree of Wage Restraint?

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  • Adam Posen
  • Daniel Popov Gould

Abstract

We find in cross-sectional investigations that wage restraint is either unchanged or increased following EMU in the vast majority of countries. This contradicts the predictions of a widely-cited family of models of labor market bargaining. In those, Germany would have been expected to display the greatest decline in wage restraint post-EMU, and we find no indication of such a decline. The time-series evidence on Italy shows a significant increase in wage restraint after eurozone entry. This pattern is consistent with the models that emphasise the gains from monetary credibility. The eurozone increase in wage restraint is matched by the increase seen in the UK and Sweden after adopting inflation targeting, another means to credibility.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1783.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1783

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Keywords: EMU; wage bargaining; monetary credibility; productivity;

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References

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Cited by:
  1. Sánchez, Marcelo, 2010. "Wage restraint and monetary union," Economic Modelling, Elsevier, Elsevier, vol. 27(1), pages 134-142, January.
  2. Söderström, Ulf, 2008. "Re-Evaluating Swedish Membership in EMU: Evidence from an Estimated Model," Working Paper Series 227, Sveriges Riksbank (Central Bank of Sweden).
  3. Ulf Söderström, 2010. "Reevaluating Swedish Membership in the European Monetary Union: Evidence from an Estimated Model," NBER Chapters, in: Europe and the Euro, pages 379-414 National Bureau of Economic Research, Inc.
  4. Sánchez, Marcelo, 2009. "National prices and wage setting in a currency union," Working Paper Series, European Central Bank 1058, European Central Bank.
  5. Sánchez, Marcelo, 2008. "Monetary stabilisation in a currency union of small open economies," Working Paper Series, European Central Bank 0927, European Central Bank.
  6. Nicolas Canry & Arnaud Lechevalier, 2006. "Wage share variations in France and Germany since 1970: what does really matter?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00140529, HAL.
  7. Carsten Hefeker, 2006. "The monetary policy consequences of enlargement," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 7(4), pages 29-34, December.

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