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Macroeconomic policies, wage developments, and Germany’s stagnation

Author

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  • Eckhard Hein

    (Macroeconomic Policy Institute IMK in the Hans Boeckler Foundation)

  • Achim Truger

    (Macroeconomic Policy Institute IMK in the Hans Boeckler Foundation)

Abstract

The paper fundamentally challenges the institutional sclerosis explanation of the present German economic stagnation. Instead, we present a macroeconomic explanation focusing on the combined effects of too restrictive monetary policies, too restrictive and sometimes pro- cyclical fiscal policies and overly moderate wage policies in Germany since the mid 1990s. This view is broadly consistent with modern macroeconomics and with empirical data. From this perspective we finally argue that Germany urgently needs more expansive fiscal and monetary policies in the short run, and that in the medium run the conditions for nominal wage growth in Germany according to the sum of long run national productivity growth and the ECB’s inflation target have to be improved. Further pursuing a policy of structural reforms with respect to the labour market and the social benefit system in combination with a restrictive macroeconomic policy mix, however, will prolong Germany’s economic stagnation and will considerably increase the risk of deflation

Suggested Citation

  • Eckhard Hein & Achim Truger, 2005. "Macroeconomic policies, wage developments, and Germany’s stagnation," Macroeconomics 0508015, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0508015
    Note: Type of Document - pdf; pages: 26
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    Cited by:

    1. David R. Howell, 2010. "Institutions, Aggregate Demand and Cross-Country Employment Performance: Alternative Theoretical Perspectives and the Evidence," Working Papers wp228, Political Economy Research Institute, University of Massachusetts at Amherst.
    2. Erik S. Reinert & Rainer Kattel, 2007. "European Eastern Enlargement as Europe's Attempted Economic Suicide?," The Other Canon Foundation and Tallinn University of Technology Working Papers in Technology Governance and Economic Dynamics 14, TUT Ragnar Nurkse Department of Innovation and Governance.

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    More about this item

    Keywords

    Wages; macroeeconomic policies; Germany;
    All these keywords.

    JEL classification:

    • E - Macroeconomics and Monetary Economics

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