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There is a widespread perception among the public and policy-makers that EMU carries one-way pressures for enhanced flexibility in the labour market. We discuss the theoretical basis of this by examining four mechanisms through which the establishment of the common currency and the functioning...
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labor market frictions. We focus on the role of business cycle conditions and external constraints at the time of reform … implementation (or of a credible commitment to it) in shaping the dynamic effects of such policies. Product market reform is modeled … manufacturing production. Labor market reform is modeled as a reduction in firing costs and/or unemployment benefits. We find that …
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