Wage Rigidity, Monetary Integration and Fiscal Stabilization in Europe

REVIEW OF INTERNATIONAL ECONOMICS

Posted: 12 Jun 1997

See all articles by Svend E. Hougaard Jensen

Svend E. Hougaard Jensen

Copenhagen Business School - Department of Economics

Abstract

Flexibility in fiscal policy is a necessary ingredient in a policy package for EMU. Even with strong endogenous shock absorbers, such as real wage flexibility, fiscal policy can speed up the stabilization process in response to demand shocks. If real wages are rigid, as they typically are in Europe, fiscal policy cannot remove the adverse effects of asymmetric supply shocks, but it can successfully limit the divergence between member states. Monetary flexibility, a possible option in the run-up to EMU, cannot completely make up for the stabilization function of fiscal policy.

JEL Classification: E6, F33

Suggested Citation

Hougaard Jensen, Svend Erik, Wage Rigidity, Monetary Integration and Fiscal Stabilization in Europe. REVIEW OF INTERNATIONAL ECONOMICS, Available at SSRN: https://ssrn.com/abstract=8681

Svend Erik Hougaard Jensen (Contact Author)

Copenhagen Business School - Department of Economics ( email )

Porcelænshaven 16 A, 1
Frederiksberg C, DK-2000
Denmark
(+45) 3815 3478 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
374
PlumX Metrics