Nominal Wage Flexibility, Wage Indexation and Monetary Union

Lars Calmfors and Åsa Johansson

No 761, CESifo Working Paper Series from CESifo

Abstract: Membership in a monetary union implies stronger incentives for nominal wage flexibility in the form of wage indexation and shorter contract length than nonmembership. For example, entry into a monetary union may cause a move from a non-indexation to an indexation equilibrium. But more wage flexibility is only an imperfect substitute for an own monetary policy. It is possible that an increase in wage flexibility is welfare-decreasing because of the accompanying rise in price variability. The interaction between wage setting and central bank behaviour may result in either multiple equilibria or a unique full-indexation equilibrium.

Keywords: nominal wage flexibility; wage indexation; monetary union; asymmetric shocks (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Nominal Wage Flexibility, Wage Indexation and Monetary Union (2006)
Working Paper: Nominal Wage Flexibility, Wage Indexation and Monetary Union (2002)
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