Working Papers present research work by both Danmarks Nationalbank’s employees and our partners. Working Papers are primarily targeted at professionals and people with an interest in central banking research as well as economics and finance in a broader sense.

Monetary policy

Are Labour Market Structures Endogenously Dependent on the Monetary Regime? – Empirical Evidence from Denmark 1875-2007

The historical experience from the past 100 years or so indicates that parts of the labour-market structure in Denmark are endogenously dependent on the monetary regime. A credible monetary regime that delivers on the final target of price stability gives a basis for inflation expectations firmly anchored around price stability, which facilitate the use of multiyear nominal wage contracts and a higher degree of decentralised wage formation among forward-looking workers and employers. Lack of credibility of a monetary regime that results in high and volatile inflation makes shorter wage contracts based on centralised wage bargaining more attractive and encourages the use of inflation indexation of nominal wages. If labour-market structures to some extent are endogenously dependent on the monetary regime, results and policy conclusions from theoretical models that treats these part of the economy as exogenous might be questionable.