Wage Moderation in Crises: Policy Considerations and Applications to the Euro Area

Jörg Decressin, Raphael Espinoza, Ioannis Halikias, Michael Kumhof, Daniel Leigh, Prakash Loungani, Paulo Medas, Susanna Mursula, Antonio Spilimbergo and TengTeng Xu

No 2015/022, IMF Staff Discussion Notes from International Monetary Fund

Abstract: The paper studies the impacts of wage moderation in the euro area. Simulation results show that if a single euro area crisis-hit economy undertakes wage moderation, the impact on output is positive for that economy and for the entire euro area. If all crisis-hit economies undertake wage moderation together, their output still expands, albeit to a lesser degree. If the wage moderation is accompanied by cuts in policy interest rates by the central bank—and by quantitative easing once interest rates hit the zero lower bound—then output for the entire euro area expands as well.

Keywords: SDN; economy; wage moderation; euro; crisis; crisis-hit economy; Euro area; Current account; Internal devaluation; Unemployment; area economy; undertaking wage moderation; partner economy; fiscal policy; crisis economy; Wage bargaining; Wages; Real wages; Real interest rates; Wage adjustments; Global (search for similar items in EconPapers)
Pages: 36
Date: 2015-11-17
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Citations: View citations in EconPapers (8)

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