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Nominal Wage Flexibility, Wage Indexation and Monetary Union

  • Calmfors, Lars

    ()

    (Institute for International Economic Studies, Stockholm University)

  • Johansson, Åsa

    ()

    (Institute for International Economic Studies, Stockholm University)

Registered author(s):

    Membership in a monetary union (EMU) is likely to imply stronger incentives for nominal wage flexibility in the form of wage indexation and shorter contract length than non-membership. For example, EMU entry may cause a move from a nonindexation to an indexation equilibrium. But more wage flexibility is only an imperfect substitute for an own monetary policy. It is possible that an increase in wage flexibility is welfare-decreasing, because of the accompanying rise in price variability. If indexation occurs outside the EMU, either multiple equilibria or full-indexation equilibria may occur.

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    Paper provided by Stockholm University, Institute for International Economic Studies in its series Seminar Papers with number 716.

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    Length: 31 pages
    Date of creation: 14 Aug 2002
    Date of revision:
    Handle: RePEc:hhs:iiessp:0716
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