Labour market reform and the sustainability of exchange rate pegs

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dc.contributor Suomen Pankki
dc.contributor.author Castrén, Olli
dc.contributor.author Takalo, Tuomas
dc.contributor.author Wood, Geoffrey
dc.date.accessioned 2014-09-22T07:58:27Z
dc.date.available 2014-09-22T07:58:27Z
dc.date.issued 2004
dc.identifier.isbn 952-462-166-5
dc.identifier.issn 0785-3572
dc.identifier.uri https://helda.helsinki.fi/bof/handle/123456789/7640
dc.description.abstract It is commonly thought that an open economy can accommodate output shocks through either exchange rate or real sector adjustments.We formalise this notion by incorporating labour market rigidities into an 'escape clause' model of currency crises.We show that the absence of structural reform makes a currency peg more fragile and undermines the credibility of the monetary authority in a dynamic setting.The fragility is captured by a devaluation premium in expectations that increases the average inflation rate when the currency peg is more vulnerable to 'busts' than 'booms'.This interaction between macroeconomic and microeconomic rigidities suggests that a policy reform can only be consistent if it renders either exchange rates or labour markets flexible. Key words: exchange rate policy, labour market flexibility, structural reform JEL classification numbers: E42, F33, D84
dc.format.extent 35 s.
dc.language.iso eng
dc.rights https://helda.helsinki.fi/bof/copyright
dc.subject valuuttapolitiikka
dc.subject valuuttakurssit
dc.subject työmarkkinat
dc.subject joustot
dc.subject uudistukset
dc.subject työttömyys
dc.subject SP
dc.title Labour market reform and the sustainability of exchange rate pegs
dc.type Sarjajulkaisu
dc.identifier.urn URN:NBN:fi:bof-20140807411
dc.subject.jel E42
dc.subject.jel F33
dc.subject.jel D84
dc.series.name Suomen Pankin keskustelualoitteita
dc.series.year 2004
dc.series.number 22/2004
dc.series.sortingnumber 22
dc.date.publication 16.11.2004
dc.identifier.doi 10.1111/j.1467-9485.2009.00508.x
dc.description.publication Published in Scottish Journal of Political Economy, Volume 57, No. 1, February 2010: 85-102

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