Does monetary union reduce employment?
AbstractWe use a two-country monetary model with unionized labor markets and open-economy spillovers to study the macroeconomic consequences of the formation of a monetary union. It is shown that the monetary regime affects the trade-off between real consumer wages and employment faced by the unions. Consequently, the equilibrium employment is endogenous and depends on the monetary regime. In particular, a switch from a floating exchange rate regime to a monetary union improves employment, provided that the degree of central bank conservatism is sufficiently high, whereas with low degrees of conservatism employment falls. Inflation is higher in a monetary union with all finite degrees of central bank conservatism. In addition, we consider an asymmetric fixed exchange rate regime as an alternative starting position for a monetary union. All results are derived assuming that labor unions are only interested in employment and real wages (not directly inflation) and that all structural parameters of the model remain unchanged when a monetary union is established.
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Bibliographic InfoPaper provided by Bank of Finland in its series Research Discussion Papers with number 7/2001.
Length: 39 pages
Date of creation: 21 May 2001
Date of revision:
monetary union; employment; labour unions; open-economy spillovers; central bank conservatism;
Find related papers by JEL classification:
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
- J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
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- René Cabral-Torres, . "Monetary and Fiscal Policy Coordination," Discussion Papers 05/28, Department of Economics, University of York.
- Bertil Holmlund, 2003.
"The Rise and Fall of Swedish Unemployment,"
CESifo Working Paper Series
918, CESifo Group Munich.
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