Paper #1408

Título:

Understanding the gains from wage flexibility: The exchange rate connection

Autores:

Jordi Galí y Tommaso Monacelli

Data:

Diciembre 2013

Resumen:

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 adjustments on 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.

Palabras clave:

sticky wages, nominal rigidities, New Keynesian model, stabilization policies, exchange rate policy, currency unions, monetary policy rules.

Códigos JEL:

E32, E52, F41

Área de investigación:

Macroeconomía y Economía Internacional

Publicado en:

American Economic Review, 106 (12): 3829–3868, 2016

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