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Wage Rigidity and Monetary Union

Author

Listed:
  • Harris Dellas

    (University of Bern, Department of Economics, CEPR and IMOP)

  • George Tavlas

    (Bank of Greece, Economic Research Department)

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.

Suggested Citation

  • Harris Dellas & George Tavlas, 2004. "Wage Rigidity and Monetary Union," Working Papers 12, Bank of Greece.
    • Handle: RePEc:bog:wpaper:12
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    References listed on IDEAS

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    More about this item

    Keywords

    Monetary union; wage rigidity; asymmetry; multi-country model;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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