Has the tradeoff between productivity gains and job growth disappeared?

Policymakers’ efforts to boost trend output growth may be hampered by the presence of a tradeoff between productivity gains and job creation. This paper presents empirical evidence that the negative relationship between productivity growth and employment growth that prevailed in the 1960s and 1970s has disappeared since then. This finding is robust to using alternative measures and including other explanatory variables. The improved tradeoff may be good news for policymakers who aim at raising the ‘speed limit’ of the economy

EMU, Monetary Policy Interactions and Exchange Rate Stability

This memorandum discusses the possible impact of a monetary union in Europe on transatlantic exchange rate stability. EMU leads to the elimination of coordination failures within the euro area. Whether this translates into more stable exchange rates, depends on the origin of the shock. Martin?s (1997) conclusion that EMU will lead to more stable exchange rates is shown to hold for both symmetric and asymmetric shocks in Europe, but not for shocks that originate out-side Europe. The results remain valid when taking into account that the pre-EMU era was characterised by a Bundesbank-led ERM, rather than a free float. Finally, the results are tested for a future expansion of the euro area

The price effects of enhancing services sector competition in a large open economy

This paper studies the price e?ects of shocks to the degree of competition. It is motivated by initiatives to enhance competition in services in the European Union. The paper shows that a higher degree of competition in the nontradable goods sector may have adverse implications for international price competitiveness. It highlights four channels through which enhanced competition in the non-tradable goods sector a?ects the general price level in a large, open economy (lower monopoly rents, lower import prices, higher demand for real money balances, higher wages) and assesses their relative importance algebraically. The conclusions are supportive of the Single Market and point at possible implications for monetary policy

The Timing of EU Expansion and the Real Exchange Rate

This paper analyses the impact of the timing of EU expansion on the real exchange rate between the accession countries' currencies and the euro. I ¯nd that the real exchange rate response to EU accession is smaller in the case of a postponed accession, as postponement gives the regions more time to converge. However, early EU accession would contribute to reducing the real exchange rate response to asymmetric productivity shocks, as increased bilateral trade reduces the size of the non-tradable goods sector, making the real exchange rate less sensitive to productivity shocks.economic integration, real exchange rate, international trade, productivity shocks.

Double discretion, international spillovers and the welfare implications of monetary unification

This paper develops a monetary-fiscal game which stresses the importance of international spillovers and introduces a double (monetary and fiscal) credibility problem. Models that neglect the inability of fiscal policymakers to commit will tend to underestimate the welfare cost of structural distortions. Due to international spillovers, stochastic shocks may be relatively costly in welfare terms, despite the contribution of policy surprises to finance such shocks. The second part of the paper studies the welfare consequences of the monetary union. It is shown that the welfare impact of EMU for Europe is ambiguous, but that EMU is welfare-improving for the US

The Welfare Cost of Structural Distortions and Stochastic Shocks

This paper develops a monetary-fiscal game which stresses the importance of international spillovers and introduces a double (monetaryand fiscal) cred- ibilityproblem. Models that neglect the inability of fiscal policymakers to commit will tend to underestimate the welfare cost of structural distortions. Due to international spillovers, stochastic shocks maybe relativelycostlyin welfare terms, despite the contribution of policysurprises to finance such shocks.commitment, spillovers, welfare analysis.