Labor market implications of switching the currency peg in a general equilibrium model for Lithuania

On February 2, 2002, Lithuania switched its currency anchor from the dollar to the euro. While pegging to the dollar (since April 1994) has proven successful throughout the transition years, the recent decision to peg to the euro was motivated by the increasing trade relations with European economies. Pizzati does not argue which peg is more appropriate, but he analyzes the implications of changing the exchange rate regime for different sectors and labor groups. While pegging to the euro entails more stability for the export sector, Lithuania is still dependent on dollar-based imports of primary goods from the Commonwealth of Independent States, more so than other Baltic countries or Central European economies. The author uses a multisector general equilibrium model to compare the effects of dollar-euro exchange rate movements under these alternative pegs. Overall, simulation results suggest that while a euro-peg will provide more stability to GDP and employment, it will also imply more volatility in prices, suggesting that under the new peg macroeconomic policy should be more concerned with inflationary pressures than before. From a sector-specific perspective, pegging to the euro will provide a more stable demand for unskilled-intensive manufacturing and commercial services. But other sectors, such as agriculture, will still face the same vulnerability to exchange rate movements. This suggests that additional policy measures may be needed to compensate sector-specific divergences.Payment Systems&Infrastructure,Economic Theory&Research,Labor Policies,Environmental Economics&Policies,Fiscal&Monetary Policy,Environmental Economics&Policies,Economic Theory&Research,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Fiscal&Monetary Policy,Banks&Banking Reform

Disinflation and the supply side

The authors study the dynamics of output, consumption, and real wages induced by a disinflation program based on permanent and temporary reductions in the nominal devaluation rate. They use an intertemporal optimizing model of a small open economy in which domestic households face imperfect world capital markets, the labor supply is endogenous, and wages are flexible. The model predicts that, with a constant capital stock and no investment, there is an initial reduction in real wages and output expands. Consumption falls on impact but increases afterward. In addition, with a temporary shock, a current account deficit emerges and, later a recession sets in, as documented in various studies. With endogenous capital accumulation, numerical simulations show that the model can also predict a boom in investment.Environmental Economics&Policies,Economic Theory&Research,Fiscal&Monetary Policy,Payment Systems&Infrastructure,Banks&Banking Reform,Economic Theory&Research,Environmental Economics&Policies,Banks&Banking Reform,Economic Growth,Fiscal&Monetary Policy

Monetary Policy Coordination and the Level of National Debt

National Debt, European Monetary Union, Inflation Bias,

Labor,Employment,and Social Policies in the EU Enlargement Process

xvii,380 p.:ill:23 c

Labor, employment, and social policies in the EU enlargement process : changing perspectives and policy options

xx, 406 p. : ill. ; 24cm