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Wage Rigidity and Monetary Union

Author

Listed:
  • Harris Dellas
  • George Tavlas

Abstract

We compare monetary union to flexible exchange rates in an asymmetric, three-country model with active monetary policy. We find that countries with a high degree of nominal wage rigidity benefit from monetary union, especially when they join other, similarly rigid countries. Countries with relatively more flexible wages tend to be worse off in unions with countries that have more rigid wages. We examine France, Germany and the UK and find that the welfare implications of monetary arrangements depend more on the degree of wage asymmetry than on other types of asymmetries and that the higher wage flexibility in the UK would make its participation in EMU costly. Copyright 2005 Royal Economic Society.

Suggested Citation

  • Harris Dellas & George Tavlas, 2005. "Wage Rigidity and Monetary Union," Economic Journal, Royal Economic Society, vol. 115(506), pages 907-927, October.
    • Handle: RePEc:ecj:econjl:v:115:y:2005:i:506:p:907-927
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    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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