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European Labour Markets and the Euro: How Much Flexibility Do We Really Need?

In: The Monetary Transmission Process

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  • Michael C. Burda

Abstract

In addition to evidence on the nature and source of regional fluctuations, European Monetary Union (EMU) will also provide economists with valuable new evidence on the monetary transmission mechanism. Given the scepticism with which macroeconomics currently regards monetary policy, current concern over real effects of EMU comes as a surprise; in a world of flexible prices, space-spanning contingent claims markets and complete information, it is difficult to see why monetary union matters at all for real integration processes already underway.1 For example, if the real business cycle paradigm (RBC) — which emphasises disturbances and propagation mechanisms in the non-monetary economy and ignores nominal rigidities — is approximately correct, the EMU exercise is nothing but a sophisticated veil. To the extent that EMU leaves fiscal policies and real behavioural incentives unchanged, the effects of a common currency are of second order at best. In short, this chapter has no real reason to be written.

Suggested Citation

  • Michael C. Burda, 2001. "European Labour Markets and the Euro: How Much Flexibility Do We Really Need?," Palgrave Macmillan Books, in: Deutsche Bundesbank (ed.), The Monetary Transmission Process, chapter 7, pages 252-282, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-59599-6_8
    DOI: 10.1057/9780230595996_8
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    More about this item

    Keywords

    Monetary Policy; Real Wage; Collective Bargaining; European Central Bank; Monetary Union;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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