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Wage Moderation in Crises; Policy Considerations and Applications to the Euro Area

Author

Listed:
  • Jörg Decressin
  • Raphael A Espinoza
  • Ioannis Halikias
  • Michael Kumhof
  • Daniel Leigh
  • Prakash Loungani
  • Paulo A Medas
  • Susanna Mursula
  • Antonio Spilimbergo
  • TengTeng Xu

Abstract

The paper studies the impacts of wage moderation in the euro area. Simulation results show that if a single euro area crisis-hit economy undertakes wage moderation, the impact on output is positive for that economy and for the entire euro area. If all crisis-hit economies undertake wage moderation together, their output still expands, albeit to a lesser degree. If the wage moderation is accompanied by cuts in policy interest rates by the central bank—and by quantitative easing once interest rates hit the zero lower bound—then output for the entire euro area expands as well.

Suggested Citation

  • Jörg Decressin & Raphael A Espinoza & Ioannis Halikias & Michael Kumhof & Daniel Leigh & Prakash Loungani & Paulo A Medas & Susanna Mursula & Antonio Spilimbergo & TengTeng Xu, 2015. "Wage Moderation in Crises; Policy Considerations and Applications to the Euro Area," IMF Staff Discussion Notes 15/22, International Monetary Fund.
  • Handle: RePEc:imf:imfsdn:15/22
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=43162
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    References listed on IDEAS

    as
    1. Hess Chung & Jean‐Philippe Laforte & David Reifschneider & John C. Williams, 2012. "Have We Underestimated the Likelihood and Severity of Zero Lower Bound Events?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 47-82, February.
    2. Charpe, Matthieu. & Kuhn, Stefan, 2015. "Beggar or prosper-thy-neighbour? : the international spillovers of labour cost," ILO Working Papers 994949190802676, International Labour Organization.
    3. Guido Baldi & Karsten Staehr, 2013. "The European debt crisis and fiscal reaction functions in Europe 2000–2012," Bank of Estonia Working Papers wp2013-5, Bank of Estonia, revised 24 Jul 2013.
    4. Thierry Tressel & Shengzu Wang & Joong S Kang & Jay C Shambaugh & Jörg Decressin & Petya Koeva Brooks, 2014. "Adjustment in Euro Area Deficit Countries; Progress, Challenges, and Policies," IMF Staff Discussion Notes 14/7, International Monetary Fund.
    5. Gauti B. Eggertsson & Paul Krugman, 2012. "Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 127(3), pages 1469-1513.
    6. Michal Andrle & Patrick Blagrave & Pedro Espaillat & Keiko Honjo & Benjamin L Hunt & Mika Kortelainen & René Lalonde & Douglas Laxton & Eleonara Mavroeidi & Dirk V Muir & Susanna Mursula & Stephen Snu, 2015. "The Flexible System of Global Models – FSGM," IMF Working Papers 15/64, International Monetary Fund.
    7. Dao, Mai Chi, 2013. "Foreign labor costs and domestic employment: What are the spillovers?," Journal of International Economics, Elsevier, vol. 89(1), pages 154-171.
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    Cited by:

    1. Xifré, Ramon, 2016. "Spain in the wake of the crisis: Reforms or Adjustment?," IESE Research Papers D/1141, IESE Business School.
    2. International Monetary Fund, 2016. "Portugal; Ex Post Evaluation of Exceptional Access Under the 2011 Extended Arrangement-Press Release; Staff Report; and Authorities Views," IMF Staff Country Reports 16/302, International Monetary Fund.
    3. Murillo Huertas, Inés P. & Ramos, Raul & Simón, Hipólito, 2017. "Revisiting Interregional Wage Differentials: New Evidence from Spain with Matched Employer-Employee Data," IZA Discussion Papers 11122, Institute of Labor Economics (IZA).

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