Current Accounts and Coordination of Wage Bargaining

41 Pages Posted: 12 Dec 2017 Last revised: 18 Nov 2021

See all articles by Mika Nieminen

Mika Nieminen

University of Jyväskylä - School of Business and Economics

Kari Heimonen

University of Jyväskylä - School of Business and Economics

Timo Tohmo

University of Jyväskylä - School of Business and Economics

Date Written: December 1, 2017

Abstract

This study provides novel evidence on the impact of labor market institutions on current account dynamics. Our results suggest that a high degree of coordination of wage bargaining has a positive effect on the current account balance over the long run. This result is not driven entirely by wage moderation induced by centralized wage setting, however. A high degree of coordination of wage bargaining is associated with a slower current account adjustment toward its long-run equilibrium. This result seems theoretically plausible; the aggregate shocks in the exporting sector are largely driven by idiosyncratic shocks and the presence of idiosyncratic shocks increases the importance of labor market flexibility. This analysis of the impact of labor market institutions on current account balances complements the existing empirical current account literature focused on macroeconomic and financial measures.

Keywords: current account balance, current account dynamics, coordination of wage bargaining, exchange rate adjustment

JEL Classification: F21, F32, F41

Suggested Citation

Nieminen, Mika and Heimonen, Kari and Tohmo, Timo, Current Accounts and Coordination of Wage Bargaining (December 1, 2017). BOFIT Discussion Paper No. 20/2017, Available at SSRN: https://ssrn.com/abstract=3085843

Mika Nieminen (Contact Author)

University of Jyväskylä - School of Business and Economics ( email )

University of Jyväskylä
PO Box 35
FIN 40351, FIN-40014
Finland

Kari Heimonen

University of Jyväskylä - School of Business and Economics ( email )

University of Jyväskylä
PO Box 35
FIN 40351, FIN-40014
Finland

Timo Tohmo

University of Jyväskylä - School of Business and Economics ( email )

University of Jyväskylä
PO Box 35
FIN 40351, FIN-40014
Finland

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