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Wage Rigidity and Monetary Union

Harris Dellas () and George Tavlas

No 12, Working Papers from Bank of Greece

Abstract: We compare monetary union to flexible exchange rates in an asymmetric, threecountry model with active monetary policy. Unlike the traditional OCA literature, we find that countries with a high degree of nominal wage rigidity benefit from monetary union, specially when they join other, similarly rigid countries. Countries with relatively more flexible wages tend to be worse off in unions with countries that have more rigid wages. We examine France, Germany and the UK and find that the welfare implications of alternative monetary arrangements depend more on the degree of wage asymmetry than on other types of asymmetries (in shocks, monetary policy etc.). And that, higher degree of wage flexibility in the UK relative to France and Germany would make its participation in EMU costly.

Keywords: Monetary union; wage rigidity; asymmetry; multi-country model (search for similar items in EconPapers)
JEL-codes: E4 E5 F4 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2004-04
References: Add references at CitEc
Citations: View citations in EconPapers (11)

Published in The Economic Journal, 2005, 115 (506), pp. 907-927.

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Related works:
Journal Article: Wage Rigidity and Monetary Union (2005)
Working Paper: Wage Rigidity and Monetary Union (2003) Downloads
Working Paper: Wage Rigidity and Monetary Union (2002) Downloads
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