Monetary Union Enlargement, Fiscal Policy, and Strategic Wage Setting

Abstract

This contribution develops a framework for studying the effects of the enlargement of a monetary union on macroeconomic performances in the presence of strategic interactions between non-atomistic labor unions, monetary, and fiscal authorities. We show that the integration of new identical member countries may have beneficial effects, depending on the fiscal policymaking structure. Qualifications to this result are provided under cross-country asymmetries in the size of the economies, the structure of the labor markets, and the fiscal authorities' preferences.