Exchange Rates and Wages in an Integrated World

March 1, 2009

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Format: Chicago

Antonio Spilimbergo, and Prachi Mishra. Exchange Rates and Wages in an Integrated World, (USA: International Monetary Fund, 2009) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We analyze how the pass-through from exchange rate to domestic wages depends on the degree of integration between domestic and foreign labor markets. Using data from 66 countries over the period 1981–2005, we find that the elasticity of domestic wages to real exchange rate is 0.1 after a year for countries with high barriers to external labor mobility, but about 0.4 in countries with low barriers to mobility. The results are robust to the inclusion of various controls, different measures of exchange rates, and concepts of labor market integration. These findings call for including labor mobility in macro models of external adjustment.

Subject: Exchange rates, Foreign exchange, Labor, Labor markets, Migration, Population and demographics, Real exchange rates, Wages

Keywords: Eastern Europe, Emigration rate, Europe, Exchange rate movement, Exchange rates, Labor market integration, Labor markets, Middle East, Migration, Pay, Real exchange rates, Reservation wage, Unemployment rate, Wage data, Wage rate, Wages, Wages of immigrant, WP

Publication Details

Pages:

44
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/044
Stock No:

WPIEA2009044
ISBN:

9781451871920
ISSN:

1018-5941

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