Exchange Rates and Wages in an Integrated World

58 Pages Posted: 18 Feb 2009

See all articles by Prachi Mishra

Prachi Mishra

International Monetary Fund (IMF) - Research Department

Antonio Spilimbergo

International Monetary Fund (IMF) - Research Department; Centre for Economic Policy Research (CEPR); University of Michigan at Ann Arbor - The William Davidson Institute

Multiple version iconThere are 3 versions of this paper

Date Written: February 2009

Abstract

We analyze how the pass-through from exchange rate to domestic wages depends on the degree of integration between domestic and foreign labor markets. Using data from 66 countries over the period 1981-2005, we find that the elasticity of domestic wages to real exchange rate is 0.1 after a year for countries with high barriers to external labor mobility, but about 0.4 in countries with low barriers to mobility. The results are robust to the inclusion of various controls, different measures of exchange rates, and concepts of labor market integration. These findings call for including labor mobility in macro models of external adjustment.

Keywords: Exchange rates, Labor market integration, Migration

JEL Classification: F16, F22, J31

Suggested Citation

Mishra, Prachi and Spilimbergo, Antonio, Exchange Rates and Wages in an Integrated World (February 2009). CEPR Discussion Paper No. DP7167. Available at SSRN: https://ssrn.com/abstract=1345694

Prachi Mishra

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Antonio Spilimbergo (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6346 (Phone)
202-623-6336 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

University of Michigan at Ann Arbor - The William Davidson Institute ( email )

724 E. University Ave.
Wyly Hall
Ann Arbor, MI 48109-1234
United States

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