Wage Rigidity and Monetary Union

Harris Dellas and George S. Tavlas

Diskussionsschriften from Universitaet Bern, Departement Volkswirtschaft

Abstract: We compare monetary union to flexible exchange rates in an asymmetric, three- country model with active monetary policy. Unlike the traditional OCA literature, we find that countries with high nominal wage rigidities benefit from monetary union, specially when they join other, similarly rigid countries. Countries with relatively more flexible wages lose when they form a union with more rigid wage countries. We study the France, Germany and the UK and find that wage asymmetries across these three countries dominate other types of asymmetries (in shocks, monetary policy etc.) in welfare comparisons. And that, if the UK had a substantially higher degree of wage flexibility than France and Germany, then her participation in EMU would be 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)
Date: 2002-12
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Related works:
Working Paper: Wage Rigidity and Monetary Union (2003)
Working Paper: Wage Rigidity and Monetary Union (2004)
Journal Article: Wage Rigidity and Monetary Union (2005)
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Persistent link: http://EconPapers.repec.org/RePEc:ube:dpvwib:dp0219

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