A Comment on "The consequences of the minimum wage when other wages are bargained over"

Cahuc, Saint-Martin, and Zylberberg (2001) show numerically that a minimum wage hike can increase both skilled and unskilled employment in a right-to-manage wage bargaining setting. This comment demonstrates that this result crucially depends on an implicitly unrealistic choice for the skilled workers' alternative wage.Minimum wage, Wage bargaining, Employment

Monetary Policy on the Way Out of the Crisis

Senior Non-Resident Fellow Jürgen von Hagen offers his recommendations for the proper monetary policy to lead the eurozone out of the crisis. He argues that the tentative recovery in the euro area indicates that both monetary and fiscal policy can be normalised soon. However, because delaying fiscal consolidation would result in greater debt burdens whereas monetary policy can be quickly adjusted to respond to unforeseen developments, there is less risk involved if a fiscal exit comes first. In any case, the two strategies must be coordinated and the European Central Bank must be very clear on its interest rate policies. This paper was prepared as part of testimony for the European Parliament's Economic and Monetary Affairs Committee. 

The monetary mechanics of the crisis

In response to the financial and economic crisis, central banks, unlike in the 1930s, have created enormous amounts of money. There are fears that this will lead to inflation, but it is base money (the central bank's liabilities) that has expanded; total monetary aggregates have not. By contrast, in the 1930s, base money remained stable and monetary aggregates dropped. The reason for this is that in a crisis the relationship between the base money and monetary aggregates is altered. The money multiplier drops. It is therefore necessary to create more base money so that monetary aggregates remain stable. This is what central banks have done in the current crisis Â? and rightly so. They have learned the lessons of the Great Depression. This framework helps understand differences across countries. The crisis affected the euro area money and credit supply process much less than the US and the UK. Therefore, the European Central Bank was right to respond to the crisis with a less expansionary monetary policy than the Bank of England and the Federal Reserve. However, stabilising the money supply may not have been enough to stabilise the supply of credit.

Linkages between the Financial and the Real Sector of the Economy: A Literature Survey

This document reviews the literature on the relationship between financial markets and the real economy. In the light of the recent financial crises, we focus on channels that are likely to be important in times of financial stress. Some channels�are governed by balance sheet effects�like the Financial Accelerator and the Bank Lending Channel. We discuss the significance of these channels in the light of empirical evidence and try to extract their quantitative importance from the literature. Both channels seem to have played an important role in the aftermath of the crisis. Further, we discuss the role of trade finance in the collapse in world trade following the financial crisis 2007-2009. While finance is important for trade, the literature is not conclusive on whether finance was also the reason for the observed collapse. Naturally, risk is important during a financial crisis. Taking a look at risk channels, we find risk also to play an important role in feedback loops between finance and the real economy. The theoretical and empirical evidence found in the literature appears to be useful in explaining the severe and long-lasting effects of the recent financial crisis.

Commercial publishing - a quiet life? Market power and performance on the Dutch market for consumer magazines

The study analyses the Dutch market for consumer magazines. Magazines share a number of characteristics with other information goods: they are experience goods, non-rival, have high fixed and low marginal cost, and content can be subsidised or sponsored by advertising. We develop a simple theoretical model to show that, if readers value content, it is profit maximising for publishers to use pricing power in the advertising market to subsidise the price charged from readers. The empirical analysis is based on a panel data set of 71 Dutch magazines over the period 1990 - 1998. The regression results suggest that magazines with a higher circulation are indeed sold at lower newsstand prices, while ad rates tend to be higher for these magazines. The analysis of the market indicates that policy makers should be on the look-out for anti-competitive actions taking place in upstream or downstream markets.

EMU's Decentralized System of Fiscal Policy

This paper reviews the macroeconomic use of national fiscal policy in EMU and examines the rational and scope for a collective insurance system which redistributes income among countries in response to asymmetric cyclical shocks. The analysis of the record of national fiscal policies before and after the adoption of the Maastricht Treaty finds evidence that the quality of fiscal policies has improved in two ways: they are more clearly countercyclical - or less procyclical - and they are more readily used to restore competitiveness than to attempt to boost demand when competitiveness is eroded. These observations suggest that fiscal policy remains a useful instrument. One question is whether it can be augmented - or perhaps substituted for - with a collective insurance system. Collective insurance is one alternative to external borrowing and lending and therefore one way to deal with the concerns that the SGP is meant to address. We examine in more detail two collective insurance systems: tax revenue sharing and unemployment insurance sharing. We find that the earlier is more promising and examine in some detail how it could be set up. It is no panacea, though. Any insurance mechanism entails moral hazard and that moral hazard can, at best, only be mitigated, not eliminated.Economic and Monetary Union, fiscal Key words Economic and Monetary Union, fiscal stabilisation, collective insurance mechanism, Von Hagen,Wyplosz

Advertised meeting-the-competition clauses: collusion instead of price discrimination

Pricing strategies may include the advertising of meeting-the-competition clauses (MCCs). We show in a specific spatial model scenario with differently informed consumers that MCCs primarily serve as a device to facilitate collusion instead of allowing for price discrimination between these consumers.meeting-the-competition clauses, advertising, price discrimination, competition, collusion

European perspectives on global imbalances

Alan Ahearne and Jürgen von Hagen explore the options European policy makers have in the context of global current account imbalances. Some Europeans are concerned that a disproportionately large burden of adjustment will fall on Europe when the European economy is not flexible enough to cope with a substantial appreciation of the euro. This paper was prepared for the Asia Europe Economic Forum conference.

Global current account imbalances: how to manage the risk for Europe

Alan Ahearne and Jürgen von Hagen examine one of the most alarming global economic developments in recent years- the evolution of global current account imbalances and its implications for European policy.