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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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Web page: http://www.res.org.uk/society/annualconf.asp
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Keywords: wage-setting; unemployment; monetary union;

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Citations

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Cited by:
  1. 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.
  2. Bratsiotis, George J., 2008. "Influential price and wage setters, monetary policy and real effects," European Journal of Political Economy, Elsevier, vol. 24(2), pages 503-517, June.
  3. 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.
  4. 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.
  5. 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.

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