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Will EMU Increase Eurosclerosis?

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Author Info
Gilles Saint Paul
Samuel Bentolila

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Abstract

In this paper we study the relationship between labor market institutions and monetary policy. We use a simple macroeconomic framework to show how optimal monetary policy rules depend on labor institutions (labor adjustment costs, and nominal and real wage rigitidy) and social preferences regarding inflation, employment, and real wages. We also calibrate our model to compute how the change in social welfare brought about by giving up monetary policy as a result of joining the Economic and Monetary Union (EMU) depends on institutions and preferences. We then use the calibrated model to analyze how EMU affects the incentives for labor market reform, both for reforms that increase the economy's adjustment potential and for those that affect the long-run unemployment rate.

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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 449.

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Date of creation: Mar 2000
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Handle: RePEc:upf:upfgen:449

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Keywords: EMU monetary union labor market institutions monetary policy labor market reform eurosclerosis political economy unemployment

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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
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
J60 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - General

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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.:
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    Other versions:
  3. Sibert, Anne & Sutherland, Alan, 1997. "Monetary Regimes and Labour Market Reform," CEPR Discussion Papers 1731, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. Chirinko, Robert S, 1993. "Business Fixed Investment Spending: Modeling Strategies, Empirical Results, and Policy Implications," Journal of Economic Literature, American Economic Association, vol. 31(4), pages 1875-1911, December. [Downloadable!] (restricted)
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  7. Cukierman, A. & Lippi, F., 2000. "Labor Markets and Monetary Union: a Strategic Analysis," Papers 365, Banca Italia - Servizio di Studi.
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  11. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Blackwell Publishing, vol. 57(3), pages 381-402, July. [Downloadable!] (restricted)
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  16. Barry Eichengreen & Charles Wyplosz, 1998. "The Stability Pact: more than a minor nuisance?," Economic Policy, CEPR, CES, MSH, vol. 13(26), pages 65-113, 04. [Downloadable!] (restricted)
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  19. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  20. Torben M. Andersen & Niels Haldrup & Jan Rose S›rensen, . "Product Market Integration and European Labour Markets," Economics Working Papers 1999-26, School of Economics and Management, University of Aarhus. [Downloadable!]
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  22. Muellbauer, John, 1994. "The Assessment: Consumer Expenditure," Oxford Review of Economic Policy, Oxford University Press, vol. 10(2), pages 1-41, Summer.
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  27. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September. [Downloadable!] (restricted)
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  30. repec:fth:tilbur:99100 is not listed on IDEAS
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Full references

Cited by:
(explanations, 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.)

  1. Ansgar Belke & Bernhard Herz & Lukas Vogel, 2005. "Structural Reforms and the Exchange Rate Regime: A Panel Analysis for the World versus OECD Countries," IZA Discussion Papers 1798, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  2. Erlandsson, Mattias, 2002. "Nominal Wage Flexibility in a Monetary Union," Working Papers in Economics 80, Göteborg University, Department of Economics. [Downloadable!]
  3. Adam S. Posen & Daniel Popov Gould, 2006. "Has EMU Had Any Impact on the Degree of Wage Restraint?," Peterson Institute Working Paper Series WP06-06, Peterson Institute for International Economics. [Downloadable!]
    Other versions:
  4. Silvia Fabiani & Diego Rodriguez-Palenzuela, 2001. "Model-based indicators of labour market rigidity," Working Paper Series 057, European Central Bank. [Downloadable!]
  5. Ansgar Belke & Bernhard Herz & Lukas Vogel, 2006. "Are Monetary Rules and Reforms Complements or Substitutes? A Panel Analysis for the World versus OECD Countries," Working Papers 129, Oesterreichische Nationalbank (Austrian Central Bank). [Downloadable!]
  6. Calmfors, Lars, 2001. "Wages and wage-bargaining institutions in the EMU – a survey of the issues," Seminar Papers 690, Stockholm University, Institute for International Economic Studies. [Downloadable!]
  7. Rantala, Anssi, 2003. "Labour market flexibility and policy coordination in a monetary union," Research Discussion Papers 11/2003, Bank of Finland. [Downloadable!]
  8. Ansgar Belke & Daniel Gros, 2007. "Instability of the Eurozone? On Monetary Policy, House Prices and Labor Market Reforms," IZA Discussion Papers 2547, Institute for the Study of Labor (IZA). [Downloadable!]
  9. Kari E.O. Alho, 2006. "Structural Reforms in the EU and Political Myopia in Economic Policies," Discussion Papers 1050, The Research Institute of the Finnish Economy. [Downloadable!]
  10. Daniel Gros & Carsten Hefeker, 2001. "Asymmetries in European Labour Markets and Monetary Policy in Euroland," Occasional Papers 01, European Network of Economic Policy Research Institutes. [Downloadable!]
  11. Anssi Rantala, 2004. "Labour market flexibility and policy coordination in a monetary union," Macroeconomics 0405001, EconWPA. [Downloadable!]
  12. Buti, Marco & Sapir, André, 2001. "EMU in the Early Years: Differences and Credibility," CEPR Discussion Papers 2832, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  13. Josep Pijoan-Mas, 2003. "Precautionary Savings Or Working Longer Hours?," Working Papers wp2003_0311, CEMFI. [Downloadable!]
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