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How Will EMU Affect Inflation and Unemployment in Europe?

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  • Gruner, Hans Peter
  • Hefeker, Carsten

Abstract

This paper explores how European Monetary Union will change the wage setting behavior of national labor unions. The authors derive the impact of national inflation aversion and labor militancy on the performance of national labor markets under different monetary arrangements. A common central bank raises inflation and unemployment if it acts as conservatively as national central banks. However, unemployment falls in countries that previously tied their monetary policy to the Bundesbank. The authors also examine the composition of EMU and the influence of national labor market legislation. Copyright 1999 by The editors of the Scandinavian Journal of Economics.

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  • Gruner, Hans Peter & Hefeker, Carsten, 1999. " How Will EMU Affect Inflation and Unemployment in Europe?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(1), pages 33-47, March.
  • Handle: RePEc:bla:scandj:v:101:y:1999:i:1:p:33-47
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    References listed on IDEAS

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    1. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, pages 1-13.
    2. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, pages 473-500.
    3. Obstfeld, Maurice, 1997. "Destabilizing effects of exchange-rate escape clauses," Journal of International Economics, Elsevier, pages 61-77.
    4. Bensaid, Bernard & Jeanne, Olivier, 1997. "The instability of fixed exchange rate systems when raising the nominal interest rate is costly," European Economic Review, Elsevier, vol. 41(8), pages 1461-1478, August.
    5. Grilli, Vittorio U., 1986. "Buying and selling attacks on fixed exchange rate systems," Journal of International Economics, Elsevier, pages 143-156.
    6. Carmen M. Reinhart & Sara Calvo, 1996. "Capital Flows to Latin America: Is There Evidence of Contagion Effects?," Peterson Institute Press: Chapters,in: Guillermo A. Calvo & Morris Goldstein & Eduard Hochreiter (ed.), Private Capital Flows to Emerging Markets After the Mexican Crisis, pages 151-171 Peterson Institute for International Economics.
    7. Carmen M. Reinhart & Sara Calvo, 1996. "Capital Flows to Latin America: Is There Evidence of Contagion Effects?," Peterson Institute Press: Chapters,in: Guillermo A. Calvo & Morris Goldstein & Eduard Hochreiter (ed.), Private Capital Flows to Emerging Markets After the Mexican Crisis, pages 151-171 Peterson Institute for International Economics.
    8. Claessens, Stijn, 1991. "Balance of payments crises in an optimal portfolio model," European Economic Review, Elsevier, vol. 35(1), pages 81-101, January.
    9. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, pages 14-23.
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