Monetary-Fiscal Wage Interactions in a Multi-Country Currency Union

Marcelo Sánchez ()
Additional contact information
Marcelo Sánchez: European Central Bank, Postal: European Central Bank, Kaiserstrasse 29., D-60311 Frankfurt am Main, Germany

Journal of Economic Integration, 2013, vol. 28, 507-524

Abstract: This paper studies a multi-country currency union of small open economies. Demand-side disturbances hamper monetary union stabilisation unless participating countries’ business cycles are perfectly synchronised. In the face of country-specific supply shocks, a currency union of small open economies underperforms monetary autonomy. Higher preference for price stability also deteriorates monetary union stabilisation performance. Monetary-fiscal interaction leads to a free rider problem, with supply shocks eliciting higher interest rate variability. Wage bargaining attempting at stabilising real wages and output mitigates the free rider problem. Decentralised wage bargaining and a lower wage sensitivity of output favour a currency union over monetary autonomy.

Keywords: Monetary Union; Stabilisation; Welfare; Small Open Economies; Fiscal Policy; Wage Setting (search for similar items in EconPapers)
JEL-codes: E52 E58 E63 F33 F42 (search for similar items in EconPapers)
Date: 2013
References: Add references at CitEc
Citations:

Downloads: (external link)
http://sejong.metapress.com/ Full text (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:ris:integr:0611

Access Statistics for this article

Journal of Economic Integration is currently edited by Seongeun Kim

More articles in Journal of Economic Integration from Center for Economic Integration, Sejong University Contact information at EDIRC.
Bibliographic data for series maintained by Yunhoe Kim ().