Wage Rigidity and Monetary Union

Harris Dellas () and George Tavlas

Economic Journal, 2005, vol. 115, issue 506, 907-927

Abstract: We compare monetary union to flexible exchange rates in an asymmetric, three-country model with active monetary policy. We find that countries with a high degree of nominal wage rigidity benefit from monetary union, especially 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 monetary arrangements depend more on the degree of wage asymmetry than on other types of asymmetries and that the higher wage flexibility in the UK would make its participation in EMU costly. Copyright 2005 Royal Economic Society.

Date: 2005
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Working Paper: Wage Rigidity and Monetary Union (2004)
Working Paper: Wage Rigidity and Monetary Union (2003)
Working Paper: Wage Rigidity and Monetary Union (2002)
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