Zemanek, Holger (2009): Country Size and Labor Market Flexibility in the European Monetary Union: Why Small Countries Have more Flexible Labor Markets.
Download (237kB) | Preview
This paper explores the impact of country size on labor market flexibility in a monetary union with a common monetary policy as conducted in EMU. I apply a Barro-Gordon framework and test its result empirically for EMU. Results confirm that small countries demand higher labor market flexibility than large countries. Small countries use labor market flexibility to be protected against monetary policy in favor of large countries and use flexibility as a substitute for monetary policy. Thereby, national inflation volatilities and unemployment volatility are important determinants. Business cycle synchronization reduces the need of small countries for additional labor market flexibility.
|Item Type:||MPRA Paper|
|Original Title:||Country Size and Labor Market Flexibility in the European Monetary Union: Why Small Countries Have more Flexible Labor Markets|
|Keywords:||Structural reforms; labor market flexibility; European Monetary Union; country size; Barro-Gordon model; business cycle synchronization|
|Subjects:||F - International Economics > F1 - Trade > F15 - Economic Integration
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E42 - Monetary Systems ; Standards ; Regimes ; Government and the Monetary System ; Payment Systems
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
D - Microeconomics > D7 - Analysis of Collective Decision-Making > D78 - Positive Analysis of Policy Formulation and Implementation
E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E61 - Policy Objectives ; Policy Designs and Consistency ; Policy Coordination
|Depositing User:||Holger Zemanek|
|Date Deposited:||02. Aug 2009 02:07|
|Last Modified:||25. Feb 2013 15:36|
Barro, Robert J. / Gordon, David B. 1983a: Rules, Discretion and Reputation in a Model of Monetary Policy, Journal of Monetary Economics 12, 1, 101-121.
Barro, Robert J. / Gordon, David B. 1983b: A Positive Theory of Monetary Policy in a Natural Rate Model, Journal of Political Economy 91, 589-610.
Bean, Charles R. 1998: The Interaction of Aggregate-Demand Policies and Labour Market Reform, Swedish Economic Policy Review 5, 353-382.
Belke, Ansgar / Herz, Bernhard / Vogel, Lukas 2005: Structural Reforms and the Exchange Rate Regime: A Panel Analysis for the World versus OECD Countries, IZA Discussion Paper 1798.
Berger, Helge / Hefeker, Carsten 2004: One Country, one Vote? Labour Market Structure and Voting Rights in the ECB, CESifo Working Paper 1165.
Berthold, Norbert / Fehn, Rainer 1998: Does EMU Promote Labour-Market Reforms? Kyklos 51, 509-536.
Calmfors, Lars 2001: Unemployment, Labour Market Reform, and Monetary Union, Journal of Labour Economics 19, 265-289.
Duval, Romain / Elmeskov, Jørgen 2006: The Effects of EMU on Structural Reforms in Labour and Product Markets, ECB Working Paper 596.
European Central Bank (ECB) 2004: The Monetary Policy of the ECB, European Central Bank, Frankfurt.
European Commission (EC) 2008: EMU@10: Success and Challenges after 10 Years of Economic and Monetary Union, European Economy 2/2008.
Eurostat 2001: Compendium of HICP Reference Documents, European Commission.
Eurostat 2009: Harmonized Indices of Consumer Prices - Country Weights, Online Database, www. http://epp.eurostat.ec.europa.eu/.
Hefeker, Carsten 2006: EMU Enlargement, Policy Uncertainty and Economic Reforms, CESifo Working Paper 1767.
Heritage Foundation (Heritage) 2009: 2009 Index of Economic Freedom, Washington D.C.
International Monetary Fund (IMF) 2007: The Globalization of Labor. In: World Economic Outlook – Spillovers and Cycles in the Global Economy, April 2007, 161-192, Washington/DC.
Jaccard, James / Turrisi, Robert 2003: Interaction Effects in Multiple Regression, Newbury Park.
Kenen, Peter 1969: The Theory of Optimum Currency Areas: An Eclectic View. In: Mundell, Robert / Swoboda, Alexander (eds.): Problems in International Economy, Chicago.
Krugman, Paul R. 1993: Lessons of Massachusetts for EMU. In: Torres, Francesco / Giavazzi, Francesco (eds.): Adjustment and Growth in the European Monetary Union, Cambridge MA, 241-269.
Kydland, Finn E. / Prescott, Edward C. 1977: Rules Rather than Discretion: The Inconsistency of Optimal Plans. Journal of Political Economy 85, 473-491.
Mundell, Robert 1961: A Theory of Optimum Currency Areas, The American Economic Review 51, 657-665.
Sibert, Anne / Sutherland, Alan 2000: Monetary Union and Labour Market Reform, Journal of International Economics 51, 421-435.
Zemanek, Holger / Belke, Ansgar / Schnabl, Gunther 2009: Current Account Imbalances and Structural Adjustment in the Euro Area: How to Rebalance Competitiveness, CESifo Working Paper 2639.
Available Versions of this Item
- Country Size and Labor Market Flexibility in the European Monetary Union: Why Small Countries Have more Flexible Labor Markets. (deposited 02. Aug 2009 02:07) [Currently Displayed]