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Labor markets and Monetary Union: A Strategic Analysis

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  • Cukierman, A.
  • Lippi, F.

    (Tilburg University, Center for Economic Research)

Abstract

This paper analyzes the macroeconomic consequences of the establishment of a monetary union in the presence of unionized labour markets. It is shown that the effects of the formation of a monetary union depend on several labour market features, such as the degree of centralization of wage bargaining, labour unions' inflation aversion and the degree of substitutability between the labour of different unions. In particular, the switch from national monetary policies to a unified monetary policy usually affects both inflation and unemployment, even when all structural parameters of the economy and of unions' and policy makers' 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 labor uur unions more aggressive, increasing unemployment. Qualifications to this result are provided and their robustness is investigated under alternative structural assumptions, like cross-country asymmetries, (pre-union) ERM membership and wage leadership.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1999-100.

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Date of creation: 1999
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Handle: RePEc:dgr:kubcen:1999100

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Web page: http://center.uvt.nl

Related research

Keywords: Monetary union; inflation; unemployment; labor unions; strategic monetary policy;

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  1. repec:wop:humbsf:1999-41 is not listed on IDEAS
  2. Calmfore, L., 1993. "Centralization of Wage Bargaining and Macroeconomic Performance - A Survey," Papers 536, Stockholm - International Economic Studies.
  3. Henrik Jensen, 1993. "International monetary policy cooperation in economies with centralized wage setting," Open Economies Review, Springer, vol. 4(3), pages 269-285, September.
  4. Francesco Lippi, 2003. "Strategic Monetary Policy with Non-Atomistic Wage Setters," CEIS Research Paper 17, Tor Vergata University, CEIS.
  5. 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.
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  9. 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.
  10. 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.
  11. Gylfason, Thorvaldur & Lindbeck, Assar, 1991. "The Interaction of Monetary Policy and Wages," CEPR Discussion Papers 551, C.E.P.R. Discussion Papers.
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  13. Burda, Michael C., 1999. "European labor markets and the Euro: How much flexibility do we really need?," SFB 373 Discussion Papers 1999,41, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  14. 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.
  15. Cubitt, Robin P, 1992. "Monetary Policy Games and Private Sector Precommitment," Oxford Economic Papers, Oxford University Press, vol. 44(3), pages 513-30, July.
  16. Jensen, Henrik, 1997. " Monetary Policy Cooperation May Not Be Counterproductive," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(1), pages 73-80, March.
  17. Guzzo, Vincenzo & Velasco, Andres, 1999. "The case for a populist Central Banker," European Economic Review, Elsevier, vol. 43(7), pages 1317-1344, June.
  18. 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.
  19. 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.
  20. Cukierman, Alex & Lippi, Francesco, 1999. "Central bank independence, centralization of wage bargaining, inflation and unemployment:: Theory and some evidence," European Economic Review, Elsevier, vol. 43(7), pages 1395-1434, June.
  21. Oswald, Andrew J, 1982. "The Microeconomic Theory of the Trade Union," Economic Journal, Royal Economic Society, vol. 92(367), pages 576-95, September.
  22. Sibert, Anne & Sutherland, Alan, 2000. "Monetary union and labor market reform," Journal of International Economics, Elsevier, vol. 51(2), pages 421-435, August.
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