Institutional Interactions in Open Economies: Implications for EMU

In this chapter we analyse how the interactions between three groups of institutional actors — firms, unions and central banks — in two open economies determine output and employment in these countries. The role and importance of institutions for economic development has been stressed in recent years, in particular in the European context. First, it was discussed how the institutional innovations that are associated with the formation of the Economic and Monetary Union (EMU) and the introduction of a common currency could impact on the functioning of European labour markets, by either changing the strategic interactions between the various institutional actors (cf. Cukierman and Lippi, 2001; Soskice and Iversen, 1998) or by further encouraging the ongoing processes of European integration, product-market deregulation and the intensification of competition (cf. Nicoletti et al., 2001; Burda, 1999).