Staff Discussion Notes showcase the latest policy-related analysis and research being developed by individual IMF staff members and are published to elicit comment and to encourage debate. These papers are generally brief and written in nontechnical language, and so are aimed at a broad audience interested in economic policy issues. This Web-only series replaced Staff Position Notes in January 2011
Jörg Decressin, Raphael Espinoza, Ioannis Halikias, Michael Kumhof, Daniel Leigh, Prakash Loungani, Paulo Medas, Susanna Mursula, Antonio Spilimbergo, and TengTeng Xu
INTERNATIONAL MONETARY FUND
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.