() and Rikard Forslid
Fredrik Andersson: Department of Economics, Lund University, Postal: Department of Economics, Lund University, P.O. Box 7082, S-220 07 Lund, Sweden
Rikard Forslid: Department of Economics, Lund University, Postal: Department of Economics, Lund University, P.O. Box 7082, S-220 07 Lund, Sweden
Abstract: A simple N-country specific-factor model with imperfectly mobile labour is developed. It is shown that effects of country-specific productivity shocks hitting a small country are fundamentally asymmetric. A positive shock will be accomodated by a moderate wage increase and sizable in-migration, whereas a negative shock will be accomodated by a significant decrease in wages and moderate out-migration. The effects of shocks in a monetary union are discussed, and it is argued that the results are consistent with the recent Irish experience. The welfare effects of small economics fluctuations are also discussed.
14 pages, August 11, 2000
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