| Date: |
2018 |
| Abstract: |
The combination of downward nominal wage rigidity and pegged exchange rate creates an externality which leads to excessive wage inflation (Schmitt-Groh_e and Uribe, 2016). This paper re-examines this result assuming that wage setters are forward looking, hence endogenously restrain wage increases facing downward wage rigidity, as in Elsby (2009). In this case, wage inflation is either excessively high or excessively low compared to the social optimum: while wages increase too strongly following demand shocks, they rise by too little following Balassa-Samuelson-type technology shocks. Applying the model to euro area countries, I document excessively high wage inflation rates in the euro periphery, but excessively low rates in the euro core, in the pre-crisis period. |
| Abstract: |
The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396. |
| Grants: |
European Commission 649396
|
| Rights: |
Aquest document està subjecte a una llicència d'ús Creative Commons. Es permet la reproducció total o parcial, la distribució, la comunicació pública de l'obra i la creació d'obres derivades, fins i tot amb finalitats comercials, sempre i quan es reconegui l'autoria de l'obra original.  |
| Language: |
Anglès |
| Series: |
Barcelona Graduate School of Economics. ADEMU working paper series |
| Series: |
ADEMU Working Paper Series ; 126 |
| Document: |
Working paper |
| Subject: |
Downward nominal wage rigidity ;
Currency peg ;
Unemployment ;
Euro crisis ;
Unit labour costs ;
Real exchange rate ;
Wage restraint |
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