Scandinavian Working Papers in Economics

Seminar Papers,
Stockholm University, Institute for International Economic Studies

No 659: Monetary Union and Precautionary Labour-Market Reform

Lars Calmfors ()
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Lars Calmfors: Institute for International Economic Studies, Stockholm University, Postal: Stockholm University, S-106 69 Stockholm, Sweden

Abstract: The paper demonstrates that policy makers have a precautionary motive to undertake more labour-market reform - and hence attain lower equilibrium unemployment - inside a monetary union than outside. The reason is a desire to reduce the utility cost of variations in employment when asymmetric shocks can no longer be stabilised through domestic monetary policy.

Keywords: Monetary Union; Asymmetric Shocks; Stabilisation policy; Labour-Market Reform; Equilibrium Unemployment

JEL-codes: E58; E69; F33; J29; J30

16 pages, November 1, 1998

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