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Labour Market Reform and Monetary Policy in EMU: Do Asymmetries Matter?

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  • Hughes Hallett, Andrew
  • Viegi, Nicola

Abstract

This Paper analyses the interaction between a common monetary policy and differentiated labour market institutions. We develop a model of a two country monetary union. In each country, labour market institutions are distinguished by the degree of centralization in wage bargaining. In each country the government can also use an instrument (general taxation or payroll taxes) to influence their overall labour costs. Finally a common monetary policy is followed in a ?conservative? manner, as defined by Rogoff (1985). The results show that structural and preference asymmetries matter, both in the determination of economic policy and in performance. In particular centralized labour market institutions confer a certain comparative advantage in policy making which provides a natural incentive for the less flexible (or less reformed) to want to join a currency union; and for the more flexible to stay outside. This lowers the incentives for reform inside the union, as Calmfors and others have conjectured.

Suggested Citation

  • Hughes Hallett, Andrew & Viegi, Nicola, 2001. "Labour Market Reform and Monetary Policy in EMU: Do Asymmetries Matter?," CEPR Discussion Papers 2979, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2979
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    References listed on IDEAS

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    Cited by:

    1. Moïse Sidiropoulos & Eleftherios Spyromitros, 2006. "Fiscal Policy in a Monetary Union Under Alternative Labour-Market Structures," Working Papers of BETA 2006-25, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    2. Sotiris Theodoropoulos, 2005. "Asymmetric Shocks, Structural Rigidities and Adjustment Capability in EMU - A Review," European Research Studies Journal, European Research Studies Journal, vol. 0(3-4), pages 3-20.
    3. Hughes Hallett, Andrew & Jensen, Svend E. Hougaard, 2001. "Currency unions and the incentive to reform: are market mechanisms enough?," The North American Journal of Economics and Finance, Elsevier, vol. 12(2), pages 139-155, July.
    4. Hughes Hallett, Andrew & Bokan, Nikola, 2006. "Labour and Product Market Reforms in the Economy with Distortionary Taxation," CEPR Discussion Papers 5431, C.E.P.R. Discussion Papers.
    5. Andrew Hughes Hallett & Svend E Hougaard Jensen & Christian Richter, 2004. "Northern and Eastern Enlargement of EMU: Do Structural Reforms Matter?," SUERF Studies, SUERF - The European Money and Finance Forum, number 2004/3 edited by Morten Balling, May.
    6. Bokan, Nikola & Hughes Hallett, Andrew, 2006. "Labour and Product Market Reforms in the Economy with Distortionary Taxation," CEPR Discussion Papers 5431, C.E.P.R. Discussion Papers.
    7. Sotirios Theodoropoulos, 2011. "A Wage Policy for External Balance and Employment in EMU Environment: A Theoretical Approach," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 61(3-4), pages 85-102, July - De.

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    More about this item

    Keywords

    Monetary union; Labour market institutions; Asymmetries;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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