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Wage Formation in Open Economies and the Role of Monetary and Wage-Setting Institutions

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  • Knell, Markus

    (Osterreichische Nationalbank)

Abstract

The paper studies the determinants of unemployment in a two-countrymodel, where real wages are the outcome of the strategic interaction between various institutional players (firms, unions, central banks). We show that: (i) the results derived in the recent literature on this topic are not generally robust against the introduction of openness; (ii) the shape of the Calmfors-Driffill curve not only depends on a country's own centralization of wage bargaining (CWB) but rather on home and foreign characteristics; (iii) the model challenges the established belief that a shift to a monetary union (MU) will (negatively) affect unemployment in all member countries by fundamentally changing the nature of strategic interactions. Under certain assumptions our open-economy model suggests that the formation of a MU has no effect whatsoever on structural unemployment.

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Bibliographic Info

Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2003 with number 124.

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Date of creation: 04 Jun 2003
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Handle: RePEc:ecj:ac2003:124

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Keywords: wage-setting; unemployment; monetary union;

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References

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Citations

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Cited by:
  1. Peter Mooslechner & Martin Schürz, 2001. "The Interaction of Wage Bargaining Institutions and an Independent Central Bank – A Methodological Reflection on Current Theories," Empirica, Springer, vol. 28(4), pages 487-506, December.
  2. Eduard Hochreiter & Klaus Schmidt-Hebbel & Georg Winckler, 2002. "Monetary Union: European Lessons, Latin American Prospects," Working Papers Central Bank of Chile 167, Central Bank of Chile.
  3. G J Bratsiotis, 2005. "Influential Price and Wage Setters, Monetary Policy and Real Effects," Centre for Growth and Business Cycle Research Discussion Paper Series 63, Economics, The Univeristy of Manchester.
  4. Markus Knell, 2002. "The effects of EMU on euro area unemployment," Atlantic Economic Journal, International Atlantic Economic Society, vol. 30(3), pages 244-262, September.
  5. Carsten Hefeker, 2002. "Lohnpolitik und Geldpolitik in Euroland," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 71(3), pages 354-367.
  6. Wenlang Zhang & Gaofeng Han, 2013. "How have Labour Market Developments Affected Labour Costs in China?," Working Papers 072013, Hong Kong Institute for Monetary Research.

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