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Current Accounts and Coordination of Wage Bargaining

Author

Listed:
  • Mika Nieminen

    (University of Jyväskylä)

  • Kari Heimonen

    (University of Jyväskylä)

  • Timo Tohmo

    (University of Jyväskylä)

Abstract

This study provides novel evidence on the impact of labor market institutions on current account dynamics. Our results suggest that a high degree of coordination of wage bargaining has a positive effect on the current account balance over the long run. This result is not driven entirely by wage moderation induced by centralized wage setting. We also provide robust evidence that a high degree of coordination of wage bargaining is associated with a slower current account adjustment toward its long-run equilibrium. This result seems theoretically plausible; the aggregate shocks in the exporting sector are largely driven by idiosyncratic shocks and the presence of idiosyncratic shocks increases the importance of labor market flexibility. Overall, our analysis of the impact of labor market institutions on current account dynamics complements the existing empirical current account literature focused on macroeconomic and financial measures.

Suggested Citation

  • Mika Nieminen & Kari Heimonen & Timo Tohmo, 2019. "Current Accounts and Coordination of Wage Bargaining," Open Economies Review, Springer, vol. 30(2), pages 319-341, April.
    • Handle: RePEc:kap:openec:v:30:y:2019:i:2:d:10.1007_s11079-018-9511-2
    DOI: 10.1007/s11079-018-9511-2
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    More about this item

    Keywords

    Current account balance; Current account dynamics; Coordination of wage bargaining; Exchange rate adjustment;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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