Understanding the Gains from Wage Flexibility: The Exchange Rate Connection / Jordi Galí, Tommaso Monacelli.

Format:

Book

Author/Creator:

Galí, Jordi.

Contributor:

National Bureau of Economic Research.

Monacelli, Tommaso.

Series:

Working Paper Series (National Bureau of Economic Research) no. w22489.

NBER working paper series no. w22489

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Understanding the Gains from Wage Flexibility

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2016.

Summary:

We study the gains from increased wage flexibility using a small open economy model with staggered price and wage setting. Two results stand out: (i) the effectiveness of labor cost reductions as a means to stimulate employment is much smaller in a currency union, (ii) an increase in wage flexibility often reduces welfare, more likely so in an economy that is part of a currency union or with an exchange rate-focused monetary policy. Our findings call into question the common view that wage flexibility is particularly desirable in a currency union.

Notes:

Print version record

August 2016.