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Relative Prices in Monetary Union and Floating
Author(s) -
Vartiainen Juhana
Publication year - 2002
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/1467-9442.00286
Subject(s) - economics , inflation (cosmology) , relative price , wage , real wages , small open economy , monetary policy , monetary economics , labour economics , open economy , exchange rate , physics , theoretical physics
The setting is a small open economy with an open sector and a sheltered sector. If the unions that operate in each sector coordinate their wage claims within the sector, the choice of monetary regime—monetary union or floating with an inflation target—affects the relative prices of tradables and non–tradables as well as real wages and employment. EMU membership results in lower prices of tradable goods and lower relative wages in the open sector, while opposite results hold for sheltered sector prices and wages. JEL classification : E 5; E 24; E 42; J 5; J 31