Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212883 
Year of Publication: 
2017
Series/Report no.: 
BOFIT Discussion Papers No. 20/2017
Publisher: 
Bank of Finland, Institute for Economies in Transition (BOFIT), Helsinki
Abstract: 
This study provides novel evidence on the impact of labor market institutions on current account dynamics. Our results suggest that a high degree of coordination of wage bargaining has a positive effect on the current account balance over the long run. This result is not driven entirely by wage moderation induced by centralized wage setting, however. A high degree of coordination of wage bargaining is associated with a slower current account adjustment toward its long-run equilibrium. This result seems theoretically plausible; the aggregate shocks in the exporting sector are largely driven by idiosyncratic shocks and the presence of idiosyncratic shocks increases the importance of labor market flexibility. This analysis of the impact of labor market institutions on current account balances complements the existing empirical current account literature focused on macroeconomic and financial measures.
JEL: 
F21
F32
F41
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-201-3
Document Type: 
Working Paper

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