Wage Rigidity, Monetary Integration and Fiscal Stabilization in Europe

Research output: Contribution to journalJournal articleResearchpeer-review


Flexibility in fiscal policy is a necessary ingredient in a policy package for EMU. Even with strong endogenous shock absorbers, such as real wage flexibility, fiscal policy can speed up the stabilization process in response to demand shocks. If real wages are rigid, as they typically are in Europe, fiscal policy cannot remove the adverse effects of asymmetric supply shocks, but it can successfully limit the divergence between member states. Monetary flexibility, a possible option in the run-up to EMU, cannot completely make up for the stabilization function of fiscal policy.
Original languageEnglish
JournalReview of International Economics
Issue number5, Supplement European Economic
Pages (from-to)36-54
Number of pages19
Publication statusPublished - Nov 1997
Externally publishedYes


  • Monetary policy
  • European economic integration

Cite this