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Wage Rigidity, Monetary Integration and Fiscal Stabilization in Europe

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  • Jensen, Svend E Hougaard

Abstract

Flexibility in fiscal policy is a necessary ingredient in a policy package for EMU. Even with strong endogenous shock absorbers, such as real wage flexibility, fiscal policy can speed up the stabilization process in response to demand shocks. If real wages are rigid, as they typically are in Europe, fiscal policy cannot remove the adverse effects of asymmetric supply shocks, but it can successfully limit the divergence between member states. Monetary flexibility, a possible option in the run-up to the EMU, cannot completely make up the stabilization function of fiscal policy. Copyright 1997 by Blackwell Publishing Ltd.

Suggested Citation

  • Jensen, Svend E Hougaard, 1997. "Wage Rigidity, Monetary Integration and Fiscal Stabilization in Europe," Review of International Economics, Wiley Blackwell, vol. 5(4), pages 36-54, Supplemen.
    • Handle: RePEc:bla:reviec:v:5:y:1997:i:4:p:36-54
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    Cited by:

    1. Jérôme Creel, 2002. "Strategic interactions between monetary and fiscal policies: a case study for the European Stability Pact," SciencePo Working papers Main hal-00972776, HAL.
    2. repec:dau:papers:123456789/3413 is not listed on IDEAS
    3. repec:hal:spmain:info:hdl:2441/3221 is not listed on IDEAS
    4. van Aarle, Bas & Garretsen, Harry & van Moorsel, Cornelie, 2001. "Internal and external transmissions of monetary and fiscal policies in the EMU," Economic Systems, Elsevier, vol. 25(2), pages 127-148, June.
    5. Jérôme Creel, 2001. "Faut-il contraindre la politique budgétaire en Union monétaire ?. Les enseignements d'une maquette simulée," Revue de l'OFCE, Presses de Sciences-Po, vol. 77(2), pages 199-249.
    6. repec:spo:wpecon:info:hdl:2441/2943 is not listed on IDEAS
    7. repec:hal:wpspec:info:hdl:2441/3221 is not listed on IDEAS
    8. repec:spo:wpecon:info:hdl:2441/3221 is not listed on IDEAS
    9. repec:hal:wpspec:info:hdl:2441/2943 is not listed on IDEAS
    10. repec:hal:spmain:info:hdl:2441/2943 is not listed on IDEAS

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