Seminar Papers, Institute for International Economic Studies, Stockholm University
Nominal Wage Flexibility, Wage Indexation and Monetary Union
() and Åsa Johansson
Abstract: 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.
Keywords: nominal wage flexibility; wage indexation; EMU; asymmetric shocks; (follow links to similar papers)
JEL-Codes: E24; E32; F33; F41; (follow links to similar papers)
31 pages, August 14, 2002
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