Discussions of the economic costs and benefits of EMU usually take as their basis the optimum currency area (OCA) approach. This approach starts from the premise that when an external shock hits the economy, it is easier to adjust the exchange rate than domestic prices or wages. Most economists accept the general idea behind this approach, namely that nominal wages are usually sticky in the short-run and that it is therefore easier to adjust to external shocks and obtain changes in the real exchange rate or the terms of trade through a movement in the exchange rate. But there is little agreement on how important these "external" shocks are in reality. We try to measure the importance of external shocks for (un)employment. We find that external shocks have lit t le impact on unemployment , but are more import ant in the evolut ion of employment in manufacturing. The results differ, however, strongly from country to country and for about half of EU member countries we did not find any significant relationship. Taking into account various potential shock absorbers (exchange rate movements, fiscal and monetary policy) does not affect the results. We conclude that the loss of the exchange rate instrument will not lead to massive unemployment problems.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number
95.
Find related papers by JEL classification: E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)