Macroeconomic policies, wage developments, and Germany's stagnation
AbstractThe paper fundamentally challenges the institutional sclerosis explanation of the present German economic stagnation. Instead we present a macroeconomic explanation focusing on the combined effects of too restrictive monetary policies, too restrictive and sometimes pro-cyclical fiscal policies and overly moderate wage policies in Germany since the mid 1990s. This view is broadly consistent with modern macroeconomics and with empirical data. From this perspective we finally argue that Germany urgently needs more expansive fiscal and monetary policies in the short run, and that in the medium run the conditions for nominal wage growth in Germany according to the sum of long run national productivity growth and the ECB's inflation target have to be improved. Further pursuing a policy of structural reforms with respect to the labour market and the social benefit system in combination with a restrictive macroeconomic policy mix, however, will prolong Germany's economic stagnation and will considerably increase the risk of deflation.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. 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.
Bibliographic InfoPaper provided by IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute in its series IMK Working Paper with number 01-2005.
Length: 27 pages
Date of creation: Apr 2005
Date of revision:
monetary policy; fiscal policy; structural reform;
Other versions of this item:
- Eckhard Hein & Achim Truger, 2005. "Macroeconomic policies, wage developments, and Germany’s stagnation," Macroeconomics 0508015, EconWPA.
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
This paper has been announced in the following NEP Reports:
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.:
- Dean Baker & Andrew Glyn & David Howell & John Schmitt, 2002.
"Labor Market Institutions and Unemployment: A Critical Assessment of the Cross-Country Evidence,"
SCEPA Working Papers
2002-17, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
- Andrew Glyn, 2003. "Labor Market Institutions and Unemployment: A Critical Assessment of the Cross-Country Evidence," Economics Series Working Papers 168, University of Oxford, Department of Economics.
- Laurence Ball, 1999. "Aggregate demand and Long-Run Unemployment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(2), pages 189-252.
- Horst Siebert, 1997. "Labor Market Rigidities: At the Root of Unemployment in Europe," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 37-54, Summer.
- Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
- Nickell, S. & Layard, R., 1997.
"Labour Market Institutions and Economic Performance,"
23, Centre for Economic Performance & Institute of Economics.
- Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084 Elsevier.
- Richard Layard & Stephen Nickell, 1998. "Labour Market Institutions and Economic Performance," CEP Discussion Papers dp0407, Centre for Economic Performance, LSE.
- Arestis, Philip, 1996. "Post-Keynesian Economics: Towards Coherence," Cambridge Journal of Economics, Oxford University Press, vol. 20(1), pages 111-35, January.
- Bernanke, Ben & Gertler, Mark, 1995.
"Inside the Black Box: The Credit Channel of Monetary Policy Transmission,"
95-15, C.V. Starr Center for Applied Economics, New York University.
- Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
- Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," NBER Working Papers 5146, National Bureau of Economic Research, Inc.
- Allsopp, Christopher & Vines, David, 1998. "The Assessment: Macroeconomic Policy after EMU," Oxford Review of Economic Policy, Oxford University Press, vol. 14(3), pages 1-23, Autumn.
- Bhaduri, Amit & Marglin, Stephen, 1990. "Unemployment and the Real Wage: The Economic Basis for Contesting Political Ideologies," Cambridge Journal of Economics, Oxford University Press, vol. 14(4), pages 375-93, December.
- Schettkat, Ronald, 2002.
"Institutions in the economic fitness landscape: what impact do welfare state institutions have on economic performance?,"
Discussion Papers, Research Unit: Labor Market Policy and Employment
FS I 02-210, Social Science Research Center Berlin (WZB).
- Ronald Schettkat, 2003. "Institutions in the Economic Fitness Landscape: What Impact Do Welfare State Institutions Have on Economic Performance?," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 1(2), pages 27-33, October.
- Schettkat, Ronald, 2003. "Institutions in the Economic Fitness Landscape: What Impact Do Welfare State Institutions Have on Economic Performance?," IZA Discussion Papers 696, Institute for the Study of Labor (IZA).
- Ronald Schettkat, 2003. "Are institutional rigidities at the root of European unemployment?," Cambridge Journal of Economics, Oxford University Press, vol. 27(6), pages 771-787, November.
- Thomas I. Palley, 1998. "Restoring Prosperity: Why the U.S. Model Is Not the Answer for the United States or Europe," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 20(3), pages 337-353, April.
- Robert Solow, 2000. "Unemployment in the United States and in Europe - A Contrast and the Reasons," CESifo Working Paper Series 231, CESifo Group Munich.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sabine Nemitz).
If references are entirely missing, you can add them using this form.