Understanding the Gains from Wage Flexibility: The Exchange Rate Connection / Jordi Galí, Tommaso Monacelli.

By:

Galí, Jordi

Contributor(s):

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w22489.Publication details: Cambridge, Mass. National Bureau of Economic Research 2016.Description: 1 online resource: illustrations (black and white)Subject(s):

Online resources:

Available additional physical forms:

Hardcopy version available to institutional subscribers

Abstract: We study the gains from increased wage flexibility using a small open economy model with staggered price and wage setting. Two results stand out: (i) the effectiveness of labor cost reductions as a means to stimulate employment is much smaller in a currency union, (ii) an increase in wage flexibility often reduces welfare, more likely so in an economy that is part of a currency union or with an exchange rate-focused monetary policy. Our findings call into question the common view that wage flexibility is particularly desirable in a currency union.

Tags from this library: No tags from this library for this title. Log in to add tags.

Average rating: 0.0 (0 votes)

Holdings
Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w22489 (Browse shelf(Opens below))	Not For Loan

Total holds: 0

Collection: Colección NBER Close shelf browser (Hides shelf browser)

Previous	No cover image available	No cover image available	No cover image available	No cover image available	No cover image available	No cover image available	No cover image available	Next
Previous	nber w22486 Peer Information and Risk-taking under Competitive and Non-competitive Pay Schemes /	nber w22487 Heads or Tails: The Impact of a Coin Toss on Major Life Decisions and Subsequent Happiness /	nber w22488 Gender Differences in Cooperative Environments? Evidence from the U.S. Congress /	nber w22489 Understanding the Gains from Wage Flexibility: The Exchange Rate Connection /	nber w2249 Are Exchange Rates Excessively Variable? /	nber w22490 Paralyzed by Fear: Rigid and Discrete Pricing under Demand Uncertainty /	nber w22491 The Morale Effects of Pay Inequality /	Next

August 2016.

We study the gains from increased wage flexibility using a small open economy model with staggered price and wage setting. Two results stand out: (i) the effectiveness of labor cost reductions as a means to stimulate employment is much smaller in a currency union, (ii) an increase in wage flexibility often reduces welfare, more likely so in an economy that is part of a currency union or with an exchange rate-focused monetary policy. Our findings call into question the common view that wage flexibility is particularly desirable in a currency union.