The Effects of Alternative Wage Regimes in a Monetary Union: A Multi-Country Agent Based-Stock Flow Consistent Model

34 Pages Posted: 16 Feb 2018

See all articles by Alessandro Caiani

Alessandro Caiani

University of Pavia - Faculty of Economics

Ermanno Catullo

Università Politecnica delle Marche

Mauro Gallegati

Università Politecnica delle Marche - Faculty of Economics

Date Written: 31 12, 2017

Abstract

The eurozone crisis has revitalized the debate between economists on the role played by wages in open economies. Salaries paid to workers are at the same time a fundamental source of aggregate demand and a determinant of firms' international cost competitiveness. After presenting the most relevant positions regarding the role of wages in the eurozone crisis, the paper investigates the impact of alternative wage growth patterns in an artificial Monetary Union, by means of simulation experiments conducted with the Agent Based-Stock Flow Consistent (AB-SFC) Multi-Country model presented in Caiani et al. (2017a). Changes in wage growth regimes impact in non-trivial ways on both the demand and supply sides of the economies, combining Keynesian and Schumpeterian effects. When pursued in isolation, both wage inflation and wage moderation strategies are characterized by a trade-off between the external and fiscal stance of the country and the dynamics of real GDP and labor productivity. On the contrary, coordinated wage increases in all member countries benefit the economy without compromising the external balance. Sensitivity experiments show that results are robust to different dimensions of the Monetary Union and that the efficacy of coordinated wage inflationary strategies is enhanced when consumers give more importance to price differentials in their consumption allocation decisions.

Keywords: Agent Based Macroeconomics, Stock Flow Consistent Models, European Integration, Wages, Trade Imbalances

JEL Classification: F15, F16, C63

Suggested Citation

Caiani, Alessandro and Catullo, Ermanno and Gallegati, Mauro, The Effects of Alternative Wage Regimes in a Monetary Union: A Multi-Country Agent Based-Stock Flow Consistent Model (31 12, 2017). Available at SSRN: https://ssrn.com/abstract=3118643 or http://dx.doi.org/10.2139/ssrn.3118643

Alessandro Caiani (Contact Author)

University of Pavia - Faculty of Economics ( email )

Corso Strada Nuova, 65
27100 Pavia
Italy

Ermanno Catullo

Università Politecnica delle Marche ( email )

Piazzale Martelli 8
Ancona, 18039
Italy

Mauro Gallegati

Università Politecnica delle Marche - Faculty of Economics ( email )

Piazzale Martelli, 8
60121 Ancona
Italy
++390712207188 (Phone)
++390712207102 (Fax)

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