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Is the European Monetary Union an Endogenous Currency Area? The Example of the Labor Markets

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  • Buscher, Herbert S.
  • Gabrisch, Hubert

Abstract

Our study tries to find out whether wage dynamics between Euro member countries became more synchronized through the adoption of the common currency. We calculate bivarate correlation coefficients of wage and wage cost dynamics and run a model of endogenously induced changes of coefficients, which are explained by other variables being also endogenous: trade intensity, sectoral specialization, financial integration. We used a panel data structure to allow for crosssection weights for countrypair observations. We use instrumental variable regressions in order to disentangle exogenous from endogenous influences. We applied these techniques to real and nominal wage dynamics and to dynamics of unit labor costs. We found evidence for persistent asymmetries in nominal wage formation despite a single currency and monetary policy, responsible for diverging unit labor costs and for emerging trade imbalances among the EMU member countries.

Suggested Citation

  • Buscher, Herbert S. & Gabrisch, Hubert, 2009. "Is the European Monetary Union an Endogenous Currency Area? The Example of the Labor Markets," IWH Discussion Papers 7/2009, Halle Institute for Economic Research (IWH).
    • Handle: RePEc:zbw:iwhdps:iwh-7-09
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    References listed on IDEAS

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    Cited by:

    1. Herbert Buscher & Hubert Gabrisch, 2012. "The synchronization of wage dynamics across EMU members. A test of the endogeneity hypothesis," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 39(3), pages 327-340, August.
    2. Handler, Heinz, 2013. "The eurozone: piecemeal approach to an optimum currency area," MPRA Paper 67183, University Library of Munich, Germany.
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    4. Glassner, Vera & Pusch, Toralf, 2010. "The Emergence of Wage Coordination in the Central Western European Metal Sector and its Relationship to European Economic Policy," IWH Discussion Papers 13/2010, Halle Institute for Economic Research (IWH).

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    More about this item

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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