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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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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2006/wp-cesifo-2006-08/cesifo1_wp1783.pdf
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Bibliographic Info

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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  1. Bernd Hayo, 2007. "Is European Monetary Policy Appropriate for the EMU Member Countries? A Counterfactual Analysis," Money Macro and Finance (MMF) Research Group Conference 2006 36, Money Macro and Finance Research Group.
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  4. Cukierman, Alex & Lippi, Francesco, 1999. "Labour Markets and Monetary Union: A Strategic Analysis," CEPR Discussion Papers 2236, C.E.P.R. Discussion Papers.
  5. Posen, Adam, 1998. "Central Bank Independence and Disinflationary Credibility: A Missing Link?," Oxford Economic Papers, Oxford University Press, vol. 50(3), pages 335-59, July.
  6. Rose, Andrew, 1999. "One Money, One Market: Estimating the Effect of Common Currencies on Trade," Seminar Papers 678, Stockholm University, Institute for International Economic Studies.
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Citations

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Cited by:
  1. Carsten Hefeker, 2006. "The monetary policy consequences of enlargement," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 7(4), pages 29-34, December.
  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. Sánchez, Marcelo, 2010. "Wage restraint and monetary union," Economic Modelling, Elsevier, vol. 27(1), pages 134-142, January.
  4. repec:hal:cesptp:halshs-00140529 is not listed on IDEAS
  5. Sánchez, Marcelo, 2009. "National prices and wage setting in a currency union," Working Paper Series 1058, European Central Bank.
  6. 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.
  7. Sánchez, Marcelo, 2008. "Monetary stabilisation in a currency union of small open economies," Working Paper Series 0927, European Central Bank.

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