Do Labour Market Reforms Achieve a Double Dividend under EMU? Discretionary versus Rule-based Monetary Policy Revisited
High equilibrium unemployment and the inflation bias in some EU countries require fundamental reforms of labour-market institutions. Impacts of different monetary regimes inside and outside EMU on the incentives for labour- market reforms are examined in a Barro- Gordon framework from the perspective of a single country. Monetary policy (discretionary versus rule-based) and the degree of labour-market reforms are determined simultaneously. It can be shown that discretionary policy outside EMU leads to a higher degree of reforms than rulebased policy since in the former case reforms reduce both unemployment and the inflation bias. However, rule-based monetary policy inside EMU limits the bene - fits of reforms to a positive impact on employment. Nevertheless, total economy welfare under EMU is superior to the one under discretionary policy. Insofar as a superior instrument is available for the parallel reduction of the equilibrium inflation rate, namely a strict monetary policy rule, the higher degree of labourmarket reforms under discretionary monetary policy outside EMU only signals a kind of an overshooting.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.