DP1731 Monetary Regimes and Labour Market Reform

Author(s): Anne Sibert, Alan Sutherland
Publication Date: November 1997
Keyword(s): Economic Reform, Monetary Union, Policy Coordination
JEL(s): E61, F33, F42
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1731

Policy-makers? incentives to undertake costly reform depends on the international monetary system. We consider the effect of monetary regimes on labour market reform. We find international negotiation of monetary policy produces less reform than non-cooperation. Reform is lowest of all with monetary union. Because integration lowers reform, inflation is higher under monetary union than with national currencies. It may be higher or lower with negotiation than no coordination. Despite the negative impact on reform, negotiation produces higher welfare than no coordination. Monetary union can produce higher or lower welfare than either negotiation or no coordination.