Camille Logeay, Katja Rietzler, Sabine Stephan, Rudolf Zwiener

Understanding wage, price and export performance in the Euro area. Evidence from a multi-country-macroeconometric model

18 Seiten · 3,26 EUR
(16. Oktober 2006)

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From the introduction of the editors:

The paper by Camille Logeay, Katja Rietzler, Sabine Stephan and Rudolf Zwiener deals with wage price and export dynamics in the Euro area. They argue that with the introduction of the euro and the common monetary policy governed by the ECB, the conditions for national economic policy in EMU member countries changed significantly. Economic policy can no longer focus exclusively on national interests but must also take into account its consequences on the European level. This is especially true for the wage development which influences significantly the foreign trade flows within the EMU via changes in the price competitiveness of the exporting industries. The paper focuses on the determinants of wage, price and foreign trade developments in EMU member countries, on their interactions, and on their impact on European growth. Due to the fixed nominal exchange rates in a monetary union, wages and prices in the EMU countries have to carry the load of adjustment after external and internal shocks. Against the background that this adjustment process requires more time and is typically costly for the member countries, the authors recommend the use of a normative wage formula at the level of the individual countries. Countries would then not be creating a competitive advantage at the expense of other countries through wage dumping. Instead, all countries together would contribute to European growth with their domestic demand, while at the same time meeting the ECB’s inflation target thereby facilitating a growth-friendly monetary policy.