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International spill-over effects of labour market rigidities

  • Spange, Morten

This paper analyses the implications of real wage rigidities in a two-country stochastic general equilibrium model. It is shown how real wage rigidities in one country affect welfare in both countries. By assuming that the labour unions within each country decide whether wages are flexible or rigid, it is found that wages will be flexible in either none, one or both of the countries. Hence, even in a symmetric model flexible wages in one country and rigid wages in the other may be an equilibrium. Since there are international spill-over effects of the choice of wage setting regime, the utilitarian solution is also considered. Interestingly, this does not necessarily entail more real wage flexibility than in the Nash equilibrium.

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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 30 (2008)
Issue (Month): 1 (March)
Pages: 157-178

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Handle: RePEc:eee:jmacro:v:30:y:2008:i:1:p:157-178
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

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  1. Beetsma, Roel M W J & Schotman, Peter C, 2001. "Measuring Risk Attitudes in a Natural Experiment: Data from the Television Game Show Lingo," Economic Journal, Royal Economic Society, vol. 111(474), pages 821-48, October.
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  5. Giancarlo Corsetti & Paolo Pesenti, 1997. "Welfare and Macroeconomic Interdependence," NBER Working Papers 6307, National Bureau of Economic Research, Inc.
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  7. Andersen, Torben M. & Spange, Morten, 2006. "International interdependencies in fiscal stabilization policies," European Economic Review, Elsevier, vol. 50(5), pages 1169-1195, July.
  8. Benigno, Pierpaolo, 2004. "Optimal monetary policy in a currency area," Journal of International Economics, Elsevier, vol. 63(2), pages 293-320, July.
  9. Beetsma, Roel M.W.J. & Jensen, Henrik, 2005. "Monetary and fiscal policy interactions in a micro-founded model of a monetary union," Journal of International Economics, Elsevier, vol. 67(2), pages 320-352, December.
  10. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  11. Erlandsson, Mattias, 2002. "Nominal Wage Flexibility in a Monetary Union," Working Papers in Economics 80, University of Gothenburg, Department of Economics.
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