The Role of nominal wages in trade and current account surpluses

Gustav Horn, Fabian Lindner and Sabine Stephan

No 125e-2017, IMK Report from IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute

Abstract: A macroeconomically oriented wage policy in Germany in the years 2001 to 2015 would have led to a reduced growth of real net exports but would not have significantly reduced Germany's trade and current account surpluses. While real exports would have declined, higher export prices would have led to an increase in overall export receipts so that the current account surplus - denominated in euro terms - would scarcely have shrunk. Such a wage policy, however, would have increased domestic demand and would have influenced income distribution positively (an increase in the wage share). Such a policy would however, have improved the government's financial situation, thereby increasing its spending capacity. A combination of macroeconomic wage policy and a support by fiscal policy making use of the financial leeway created by higher wages would have decreased the nominal trade and current account balance to a greater degree than wage policy alone. Surpluses would mainly have been reduced through an increase in imports due to an improved domestic economic development. However, for the current account balance to be in line with EU rules, much stronger financial impulses would be needed.

Pages: 19 pages
Date: 2017
New Economics Papers: this item is included in nep-acc, nep-eec, nep-mac and nep-opm
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Citations: View citations in EconPapers (11)

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