Wage Moderation in Crises: Policy Considerations and Applications to the Euro Area


Jörg Decressin ; Raphael A Espinoza ; Ioannis Halikias ; Michael Kumhof ; Daniel Leigh ; Prakash Loungani ; Paulo A Medas ; Susanna Mursula ; Antonio Spilimbergo ; TengTeng Xu

Publication Date:

November 17, 2015

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Disclaimer: This Staff Discussion Note represents the views of the authors and does not necessarily represent IMF views or IMF policy. The views expressed herein should be attributed to the authors and not to the IMF, its Executive Board, or its management. Staff Discussion Notes are published to elicit comments and to further debate.


The paper studies the impacts of wage moderation in the euro area. Simulation results show that if a single euro area crisis-hit economy undertakes wage moderation, the impact on output is positive for that economy and for the entire euro area. If all crisis-hit economies undertake wage moderation together, their output still expands, albeit to a lesser degree. If the wage moderation is accompanied by cuts in policy interest rates by the central bank—and by quantitative easing once interest rates hit the zero lower bound—then output for the entire euro area expands as well.


Staff Discussion Notes No. 2015/022



Publication Date:

November 17, 2015



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