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Is Small Really Beautiful? Explaining Different Unemployment Performances within the Euro-Zone

Sebastian Dullien ()

European Political Economy Review, 2003, vol. 1, issue Autumn, 126-151

Abstract: This article asks why unemployment performance in small countries in European Monetary Union has been superior to that in large EMU countries. Within a model of monopolistic competition, it is shown that a possible answer is a beggar-thy-neighbor policy by the small countries. When dropping the real balance effect from a standard model of monopolistic competition, it is found that a monopoly trade union setting wages for a large economy cannot inßuence employment and output by changing nominal wages. A trade union in a small country which is in a monetary union with a large country, on the other hand, can increase output and employment by wage restraint.

Keywords: EMU; wage bargaining (search for similar items in EconPapers)
JEL-codes: E24 F53 J64 (search for similar items in EconPapers)
Date: 2003
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Handle: RePEc:epe:journl:v:1:y:2003:i:autumn:p:126-151