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Exchange Rates and Wages in an Integrated World

Author/Editor: Mishra, Prachi | Spilimbergo, Antonio
Authorized for Distribution: March 1, 2009
Electronic Access: Free Full Text (PDF file size is 925KB)
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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.
 
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Series: Working Paper No. 09/44
Subject(s): Labor markets | Migration | Exchange rates | Wages | Economic integration | Time series | Cross country analysis | Economic models
Author's keyword(s): Migration | exchange rates | labor market integration
 
English  
    Published:   March 1, 2009        
            Format:   Paper
    Stock No:   WPIEA2009044   Pages:   42
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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