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Will EMU Increase Eurosclerosis?

Listed author(s):
  • Saint-Paul, G.
  • Bentolila, S.

In this paper we study the relationship between labor market institutions and monetary policy. We use a simple macroeconomic framework to show how optimal monetary policy rules depend on labor institutions (labor adjustment costs, and nominal and real wage rigitidy) and social preferences regarding inflation, employment, and real wages. We also calibrate our model to compute how the change in social welfare brought about by giving up monetary policy as a result of joining the Economic and Monetary Union (EMU) depends on institutions and preferences. We then use the calibrated model to analyze how EMU affects the incentives for labor market reform, both for reforms that increase the economy's adjustment potential and for those that affect the long-run unemployment rate.

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Paper provided by Centro de Estudios Monetarios Y Financieros- in its series Papers with number 0004.

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Length: 56 pages
Date of creation: 2000
Handle: RePEc:fth:cemfdt:0004
Contact details of provider: Postal:
Centro de Estudios Monetarios Y Financieros. Casado del Alisal, 5-28014 Madrid, Spain.

Phone: 914290551
Fax: 914291056
Web page: http://www.cemfi.es/
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  1. Broadbent, Ben & Barro, Robert J., 1997. "Central bank preferences and macroeconomic equilibrium," Journal of Monetary Economics, Elsevier, vol. 39(1), pages 17-43, June.
  2. Bentolila, Samuel & Saint-Paul, Gilles, 1994. "A model of labor demand with linear adjustment costs," Labour Economics, Elsevier, vol. 1(3-4), pages 303-326, September.
  3. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," NBER Working Papers 1950, National Bureau of Economic Research, Inc.
  4. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
  5. Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 381-402.
  6. Alex Cukierman & Francesco Lippi, 2000. "Labor Markets and Monetary Union; a Strategic Analysis," Temi di discussione (Economic working papers) 365, Bank of Italy, Economic Research and International Relations Area.
  7. repec:nbr:nberre:0126 is not listed on IDEAS
  8. Robert S. Chirinko, 1993. "Business fixed investment spending: a critical survey of modeling strategies, empirical results, and policy implications," Research Working Paper 93-01, Federal Reserve Bank of Kansas City.
  9. Erceg, Christopher J. & Henderson, Dale W. & Levin, Andrew T., 2000. "Optimal monetary policy with staggered wage and price contracts," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 281-313, October.
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  12. Anne C. Sibert & Alan Sutherland, "undated". "Monetary Regimes and Labour Market Reform," Discussion Papers 97/14, Department of Economics, University of York.
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  16. Bertola, Giuseppe & Driffill, John & James, Harold & Sinn, Hans-Werner & Sturm, Jan-Egbert & Valentinyi, Ákos, 2013. "Macroeconomic outlook," Munich Reprints in Economics 20282, University of Munich, Department of Economics.
    • Corsetti, Giancarlo & Devereux, Michael P. & Hassler, John & Saint-Paul, Gilles & Sinn, Hans-Werner & Sturm, Jan-Egbert & Vives, Xavier, 2011. "Macroeconomic outlook," Munich Reprints in Economics 20096, University of Munich, Department of Economics.
  17. Matthew B. Canzoneri & Javier Vallés & José Viñals, 1996. "Do Exchange Rate Move to Address International Macroeconomic Imbalances?," Working Papers 9626, Banco de España;Working Papers Homepage.
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  23. Gottfries, Nils & Horn, Henrik, 1987. "Wage Formation and the Persistence of Unemployment," Economic Journal, Royal Economic Society, vol. 97(388), pages 877-884, December.
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  26. Wyplosz, Charles, 1997. "EMU: Why and How It Might Happen," CEPR Discussion Papers 1685, C.E.P.R. Discussion Papers.
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  32. Michael C. Burda, 2001. "European Labour Markets and the Euro: How Much Flexibility Do We Really Need?," Economics Working Papers 003, European Network of Economic Policy Research Institutes.
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  34. Bewley, Truman F., 1998. "Why not cut pay?," European Economic Review, Elsevier, vol. 42(3-5), pages 459-490, May.
  35. Juan F. Jimeno & Jose Vinals, 1998. "The impact of EMU on European unemployment," Working Papers 34, Oesterreichische Nationalbank (Austrian Central Bank).
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  37. Barry Eichengreen & Charles Wyplosz, 1998. "The Stability Pact: more than a minor nuisance?," Economic Policy, CEPR;CES;MSH, vol. 13(26), pages 65-113, 04.
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