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Union Wage Setting and Exchange Rate Policy

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  • Lawler, Phillip
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    Abstract

    The performance of an optimally managed float is compared with that of a credibly fixed exchange rate in a small open-economy framework where wages are set by a monopoly union. Two key results emerge. First, a sufficient condition for the managed float to outperform a fixed rate is that the union be no less inflation-averse than society. Second, introducing an inflation target into the central bank's loss function ensures the superiority of the managed float regardless of the weight attached to inflation by the union. Both results reflect the sensitivity of the union mark-up to the policy regime. Copyright 2000 by The London School of Economics and Political Science

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    Bibliographic Info

    Article provided by London School of Economics and Political Science in its journal Economica.

    Volume (Year): 67 (2000)
    Issue (Month): 265 (February)
    Pages: 91-100

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    Handle: RePEc:bla:econom:v:67:y:2000:i:265:p:91-100

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    Cited by:
    1. Acocella, Nicola & Di Bartolomeo, Giovanni & Tirelli, Patrizio, 2009. "The macroeconomics of social pacts," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 202-213, October.
    2. Nicola Acocella & Giovanni Bartolomeo & Wilfried Pauwels, 2010. "Is there any scope for corporatism in macroeconomic policies?," Empirica, Springer, vol. 37(4), pages 403-424, November.
    3. Acocella, Nicola & Di Bartolomeo, Giovanni, 2004. "Non-neutrality of monetary policy in policy games," European Journal of Political Economy, Elsevier, vol. 20(3), pages 695-707, September.
    4. Giovanni Di Bartolomeo & Nicola Acocella & Wilfried Pauwels, 2004. "Is There any Scope for Corporatism in Stabilization Policies?," Working Papers 2009.154, Fondazione Eni Enrico Mattei.
    5. Acocella, Nicola & Di Bartolomeo, Giovanni, 2007. "The Cost of Social Pacts," MPRA Paper 3585, University Library of Munich, Germany.

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