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Is the European Monetary Union an Endogenous Currency Area? The Example of the Labor Markets

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Author Info
Herbert Buscher
Hubert Gabrisch

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Abstract

Our study tries to find out whether wage dynamics between Euro member countries became more synchronized through the adoption of the common currency. We calculate bivarate correlation coefficients of wage and wage cost dynamics and run a model of endogenously induced changes of coefficients, which are explained by other variables being also endogenous: trade intensity, sectoral specialization, financial integration. We used a panel data structure to allow for cross-section weights for country-pair observations. We use instrumental variable regressions in order to disentangle exogenous from endogenous influences. We applied these techniques to real and nominal wage dynamics and to dynamics of unit labor costs. We found evidence for persistent asymmetries in nominal wage formation despite a single currency and monetary policy, responsible for diverging unit labor costs and for emerging trade imbalances among the EMU member countries.

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Paper provided by Halle Institute for Economic Research in its series IWH Discussion Papers with number 7-09.

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Date of creation: Apr 2009
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Handle: RePEc:iwh:dispap:7-09

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Find related papers by JEL classification:
F15 - International Economics - - Trade - - - Economic Integration
F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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  1. Stephen Silvia, 2005. "Is the Euro Working? The Euro and European Labour Markets," International Finance 0508007, EconWPA. [Downloadable!]
  2. Jean Imbs, 2004. "Trade, Finance, Specialization, and Synchronization," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 723-734, October. [Downloadable!] (restricted)
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  3. Jakob de Haan & Robert Inklaar & Richard Jong-A-Pin, 2008. "Will Business Cycles In The Euro Area Converge? A Critical Survey Of Empirical Research," Journal of Economic Surveys, Blackwell Publishing, vol. 22(2), pages 234-273, 04. [Downloadable!] (restricted)
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  4. Andersen, Torben M & Seneca, Martin, 2008. "Labour Market Asymmetries in a Monetary Union," CEPR Discussion Papers 6800, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  5. Fischer, Christoph, 2007. "An assessment of the trends in international price competitiveness among EMU countries," Discussion Paper Series 1: Economic Studies 2007,08, Deutsche Bundesbank, Research Centre. [Downloadable!]
  6. Sebnem Kalemli-Ozcan & Bent E. Sørensen & Oved Yosha, 2003. "Risk Sharing and Industrial Specialization: Regional and International Evidence," American Economic Review, American Economic Association, vol. 93(3), pages 903-918, June. [Downloadable!]
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