Suchergebnisse

We examine fiscal adjustment episodes in 24 OECD countries in order to find how austerity affects debt and growth, and whether the choice of fiscal instrument matters for the results. Influential existing studies argue that spending cuts are more likely to successfully reduce debt and enhance economic growth than tax increases. Our main innovations over these studies are to better account for initial conditions and to employ a novel and more precise measure of actual changes in fiscal policy. We find that whether a fiscal adjustment is successful in reducing debt depends on whether the adjustment was sufficiently large to remove the budget deficit. We find no indication that it matters whether the adjustment is achieved via spending cuts or tax increases, and this conclusion holds also for the effect on economic growth.

We investigate empirically the effect of government purchases on unemployment in 20 OECD countries, for the period 1960-2007. Compared to earlier studies we use a data set with more variation in unemployment, and which allows for controlling for a host of factors that influence the effect of government purchases. We find that increased government purchases lead to lower unemployment; an increase equal to one percent of GDP reduces un-employment by 0.2 percentage point in the same year. The effect is greater in downturns than in booms, and also greater under a fixed exchange rate regime than under a floating regime.

International comparisons show that countries with co-ordinated wage setting generally have lower unemployment than countries with less co-ordinated wage setting. This paper argues that the monetary regime may affect whether co-ordination among many wage setters is feasible. A strict monetary regime, like a country-specific inflation target, to some extent disciplines wage setters, so that the consequences of uncoordinated wage setting are less detrimental than under a more passive monetary regime (eg a monetary union). Thus, the gains from co-ordination are larger under a passive regime. Under some circumstances a passive regime may induce co-operation in wage setting, and thus lower unemployment, when a stricter regime would not.

In most European countries, the prevailing terms of employment, including the nominal wage, can be changed only by mutual consent. This legal feature gives workers a strategic advantage in wage negotiations when employers push for a nominal wage cut. The upshot is a long‐run trade‐off between inflation and unemployment for low levels of inflation, in spite of all agents being rational and with no expectational errors. Specifically, downward nominal wage rigidity and excess unemployment at zero inflation are related to three factors: the coverage of collective agreements, the legal framework at contract renewal, and the strictness of the employment protection legislation for non‐union workers.

In an economy with large wage‐setters (like industry unions), the monetary regime affects the trade‐off between consumer real wages and employment and profits faced by the wage‐setters. This paper shows that an exchange rate target, including participation in a monetary union, is likely to involve lower wages in the traded sector, and higher wages in the non‐traded sector, than does a price target. An exchange rate target also involves higher prices on non‐traded goods relative to on traded goods. Overall welfare is likely to be higher under a price target.

In most European countries, the prevailing terms of employment, including the nominal wage, can only be changed by mutual consent. If inflation is so low that nominal wages have to be cut, the workers have strategic advantage in the wage negotiations, which induces higher unemployment in equilibrium. The upshot is a long run tradeoff between inflation and unemployment for low levels of inflation. Specifically, downward nominal wage rigidity, and excess unemployment at zero inflation, are related to three factors: the coverage of collective agreements, the legal framework at contract renewal, and the strictness of the employment protection legislation for non-union workers. Previous versions of the paper have circulated under the title "Monetary policy and nominal rigidities under low inflation". I am grateful John Driscoll, Stein Evju, Daniel Gros, Hans Haller, Kalle Moene, Asbjørn Rødseth, Fredrik Wulfsberg, as well as participants at presentations at CESifo, Harvard University, Virginia Polytechnic and State University, the EEA meeting in Lausanne, University of Essex, Oxford University, FIEF in Stockholm, and the Geilo seminar for useful comments on earlier drafts, to Larry Katz and Greg Mankiw for helpful discussions, and to the NBER for the hospitality when main parts of this paper was written.

In most European countries, the prevailing terms of employment, including the nominal wage, can only be changed by mutual consent. If inflation is so low that nominal wages have to be cut, the workers have strategic advantage in the wage negotiations, which induces higher unemployment in equilibrium. The upshot is a long run tradeoff between inflation and unemployment for low levels of inflation. Specifically, downward nominal wage rigidity, and excess unemployment at zero inflation, are related to three factors: the coverage of collective agreements, the legal framework at contract renewal, and the strictness of the employment protection legislation for non-union workers. Previous versions of the paper have circulated under the title "Monetary policy and nominal rigidities under low inflation". I am grateful John Driscoll, Stein Evju, Daniel Gros, Hans Haller, Kalle Moene, Asbjørn Rødseth, Fredrik Wulfsberg, as well as participants at presentations at CESifo, Harvard University, Virginia Polytechnic and State University, the EEA meeting in Lausanne, University of Essex, Oxford University, FIEF in Stockholm, and the Geilo seminar for useful comments on earlier drafts, to Larry Katz and Greg Mankiw for helpful discussions, and to the NBER for the hospitality when main parts of this paper was written. ; updatedVersion

In most European countries, nominal wages are given in collective agreements or individual employment contracts, and the employer cannot unilaterally cut wages, even after the expiration of a collective agreement. Ceteris paribus, workers have a stronger bargaining position when they try to prevent a cut in nominal wages. If inflation is so low that some nominal wages have to be cut, worker's stronger bargaining position requires higher unemployment in equilibrium. The upshot is a long run trade off between inflation and unemployment for low levels of inflation. The prediction that low inflation involves higher unemployment in Europe but not in the US is consistent with previous empirical findings.

International comparisons show that countries with co-ordinated wage setting generally have lower unemployment than countries with less co-ordinated wage setting. This paper argues that the monetary regime may affect whether co-ordination among many wage setters is feasible. A strict monetary regime, like a country-specific inflation target, to some extent disciplines wage setters, so that the consequences of uncoordinated wage setting are less detrimental than under a more passive monetary regime (eg a monetary union). Thus, the gains from co-ordination are larger under a passive regime. Under some circumstances a passive regime may induce co-operation in wage setting, and thus lower unemployment, when a stricter regime would not.

In a model with a traded and a non-traded sector and centralised wage setting within each sector, it is shown that the monetary regime affects the trade-off between consumer real wages and employment and profits. Thus, the monetary regime affects the outcome of the wage negotiations, and consequently also the equilibrium level of unemployment. An exchange rate target is likely to involve lower wages and higher employment in the traded sector, and higher wages and lower employment in the non-traded sector, than does a price target. – wages ; bargaining ; inflation target ; monetary regime ; equilibrium unemployment