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Exchange Rate Regimes, Trade, and the Wage Comovements

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  • Yoshinori Kurokawa
  • Jiaren Pang
  • Yao Tang

Abstract

The introduction of exchange rate regimes into the standard Ricardian model of trade implies stronger positive nominal wage comovements between trading countries that fix their bilateral exchange rates. Panel regression results based on data from OECD countries from 1973 to 2010 suggest that countries in the European Monetary Union (EMU) experienced stronger positive wage comovements with their main trade partners. In comparison, the positive wage comovements between countries engaged in non-currency-union pegs were weaker. When we restrict the regression to the subsample of the EMU countries, we find a significant increase in wage comovements after these countries joined the EMU in 1999 compared to the pre-euro era.

Suggested Citation

  • Yoshinori Kurokawa & Jiaren Pang & Yao Tang, 2011. "Exchange Rate Regimes, Trade, and the Wage Comovements," Tsukuba Economics Working Papers 2011-001, Faculty of Humanities and Social Sciences, University of Tsukuba.
    • Handle: RePEc:tsu:tewpjp:2011-001
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    1. Kurokawa, Yoshinori & Pang, Jiaren & Tang, Yao, 2016. "Exchange rate regimes and wage comovements in a Ricardian model with money," Journal of International Economics, Elsevier, vol. 102(C), pages 96-109.
    2. Crucini, Mario J. & Yilmazkuday, Hakan, 2014. "Understanding long-run price dispersion," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 226-240.

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    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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