Nominal Wage Flexibility in a Monetary Union
Membership in a monetary union reduces the possibilities to counteract fluctuations in productivity by monetary policy. One condition for entrance not to lead to adverse unemployment performance is that wages are flexible with respect to productivity. Here I show that, depending on workers’ risk aversion, the incentive for workers to choose more nominal wages flexibility may increase after entrance in a monetary union. The reason is that if nominal wages are fixed in long-term contracts, the abolishment of exchange rates decreases the risk in real wages. On the other hand, the common monetary policy increases the employment risk. Assuming that individuals’ preferences do not change, the institutional change in monetary policy may increase wage flexibility in a monetary union.
|Date of creation:||23 Sep 2002|
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- Obstfeld, Maurice & Rogoff, Kenneth, 2001.
"Global Implications of Self-Oriented National Monetary Rules,"
Center for International and Development Economics Research, Working Paper Series
qt6412m5b7, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
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- Maurice Obstfeld and Kenneth Rogoff., 2001. "Global Implications of Self-Oriented National Monetary Rules," Center for International and Development Economics Research (CIDER) Working Papers C01-120, University of California at Berkeley.
- Maurice Obstfeld & Kenneth Rogoff, 2003. "Global Implications of Self-Oriented National Monetary Rules," Macroeconomics 0303018, EconWPA.
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449, Department of Economics and Business, Universitat Pompeu Fabra.
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