Monetary Regimes, Labour Mobility and Equilibrium Employment

Anna Larsson
Additional contact information
Anna Larsson: Institute for International Economic Studies, Stockholm University, Postal: Stockholm University, S-106 69 Stockholm, Sweden
Authors registered in the RePEc Author Service: Anna Seim

No 745, Seminar Papers from Stockholm University, Institute for International Economic Studies

Abstract: This paper analyses the impact of the monetary regime on labour markets in a small open economy, by considering the game between large wage setters and an independent central bank in a two-sector model with potential labour mobility between sectors. Two monetary regimes are considered: membership in a monetary union and an inflation target combined with a flexible exchange rate. A key result is that when there is perfect labour mobility between sectors, the monetary regime does not matter for real wages, employment or profits. Moreover, introducing labour mobility substantially reduces wages and increases employment. Other findings are that when labour is immobile between sectors: (i) the real wage in the tradables sector is higher under inflation targeting than in a monetary union, while the reverse applies to the non-tradables sector; (ii) inflation targeting generates higher employment and profits than membership in a monetary union; and (iii) both workers and firms in the two sectors in general prefer inflation targeting to membership in a monetary union.

Keywords: Inflation Targeting; Monetary Union; Equilibrium Employment; Labour Mobility (search for similar items in EconPapers)
JEL-codes: E24 J50 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2006-05-02
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://su.diva-portal.org/smash/get/diva2:200698/FULLTEXT01 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:iiessp:0745

Access Statistics for this paper

More papers in Seminar Papers from Stockholm University, Institute for International Economic Studies Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Hanna Christiansson ().