INTERNATIONAL POLICY COORDINATION AND EUROPEAN WAGE RIGIDITY.

Recently the issue of international policy coordination has been a major topic in the literature. Mostly Europe is treated as one bloc and characterized by real wage rigidity (RWR). In this paper it is shown that this may be too simple and lead to counter-productive policy conclusions. Relaxation of the RWR assumption reverses the policy conclusions. More specifically, if one allows for regional differences within Europe and for the dependence of the indexation mechanism on the level of actual inflation the conclusions on policy coordination may be more realistic. [ABSTRACT FROM AUTHOR]