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Nominal Wage Flexibility, Wage Indexation and Monetary Union

Year: 2006

Type: article

Abstract: Membership in a monetary union implies stronger incentives for nominal wage flexibility in the form of wage indexation and shorter contract length than non‐membership. This counteracts the stabilisation policy cost of giving up monetary independence. But more wage flexibility is only an imperfect substitute for an individual 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.

Source: The Economic Journal

DOI: 10.1111/j.1468-0297.2006.01057.x

Authors: Lars Calmfors, Åsa Johansson

Institutions: Peterson Institute for International Economics, Stockholm University

Language: English

Topic: Monetary Policy and Economic Impact

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: green

OpenAlex ID: W2010713020

FWCI: 10.08

Cites: 73

Cited by: 53

Related to: 10