Seminar Papers, Institute for International Economic Studies, Stockholm University
Macroeconomic Policy, Wage Setting and Employment - What Difference Does the EMU Make?
Abstract: The likely impact of the EMU on the variability and level
of employment is analysed. The major conclusions are: (1) Although an
inflation-target regime will constrain monetary policy of a non-participant
in the EMU, it still leaves considerable scope for exchange rate chages in
the case of country-specific demand-shocks, provided that there is some
nominal price and wage flexibility. (2) Variations in payroll taxes can be
used as a substitute for exchange rate changes in the EMU, but it will be
an imperfect substitute. (3) Money-wage flexibility is likely to be larger
inside than outside the EMU, but probably not by much. (4) There are
various mechanisms through which the EMU may affect the incentives for
labour-market reform to reduce equilibrium unemployment, but the net impact
is highly uncertain.
Keywords: Monetary Union; Asymetric Shocks; Stabilisation Policy; Wage Setting; Labour-Market Reform; Equilibrium Unemployment; (follow links to similar papers)
JEL-Codes: E58; E69; F33; J29; J30; (follow links to similar papers)
55 pages, October 1, 1998
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