Working Paper: CEPR ID: DP215
Authors: George Alogoskoufis
Abstract: In this paper I investigate the relationships between wage adjustment, competitiveness, macroeconomic policy and aggregate fluctuations in a small open economy. Based on a model of an economy producing both traded and non-traded goods, and assuming that the traded goods sector is competitive while the non-traded goods sector is oligopolistic, I show that real wages in the traded goods sector are negatively related with competitiveness. Wage setting is what determines competitiveness, output and inflation, and is pivotal for the effects of macroeconomic policies. The model is estimated and tested for the postwar period, and is used to assess the macroeconomic experience and policy options in Greece.
Keywords: competitiveness; wages; macroeconomic policy
JEL Codes: 131; 431
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| real wages in the traded goods sector (F16) | competitiveness (L13) |
| wage setting (J38) | competitiveness (L13) |
| wage setting (J38) | output (C67) |
| wage setting (J38) | inflation (E31) |
| government expenditure (H59) | employment (J68) |
| government expenditure (H59) | competitiveness (L13) |
| government expenditure (H59) | inflation (E31) |