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.
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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
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