Real Effects of Monetary Regimes

Sammanfattning: This thesis consists of three essays on the real effects of monetary regimes.“Monetary Regimes, Labour Mobility and Equilibrium Employment” analyses the impact of the monetary regime on labour markets in a small open economy by considering the game between large wage setters and the central bank in a model with labour mobility between sectors. Two monetary regimes are considered: membership in a monetary union and a national inflation target. A key result is that when there is perfect labour mobility, the monetary regime is of no importance for real wages, employment or profits. When labour is immobile between sectors: (i) the real wage in the tradables sector is higher under inflation targeting than in a monetary union, while the reverse applies to the non-tradables sector; (ii) inflation targeting generates higher employment and profits than membership in a monetary union; and (iii) workers and firms in the two sectors in general prefer inflation targeting to membership in a monetary union.“Fiscal Activism under Inflation Targeting and Non-atomistic Wage Setting” considers a game between the government, an independent central bank and non-atomistic wage setters. I discuss the implications of inflation targeting and fiscal activism for the labour market outcome. The results suggest that while inflation targeting may discipline wage setters, activist fiscal policy generates higher real wages and lower employment. The main explanation is that unions make the government assume responsibility for some of the cost of high wages. The difference between regimes is greater if the government pursues activist fiscal policy, which suggests that inflation targeting is even more important in economies with a high degree of fiscal activism. “The Swedish Real Exchange Rate under Different Currency Regimes” presents evidence on the behaviour of the Swedish real exchange rate relative to Germany under different currency regimes 1973:1-2001:4. The results suggest that the real exchange rate is cointegrated with Swedish and German productivity, which is consistent with Balassa (1964) and Samuelson (1964). In the short run, the exchange rate regime has mattered for the dynamics of the real exchange rate. Deviations from long-run equilibrium have been adjusted more quickly when the nominal exchange rate has been allowed to float freely.