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Wage-setting under Different Monetary Regimes

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  • Steinar Holden

Abstract

In an economy with large wage-setters (like industry unions), the monetary regime affects the trade-off between consumer real wages and employment and profits faced by the wage-setters. This paper shows that an exchange rate target, including participation in a monetary union, is likely to involve lower wages in the traded sector, and higher wages in the non-traded sector, than does a price target. An exchange rate target also involves higher prices on non-traded goods relative to on traded goods. Overall welfare is likely to be higher under a price target. Copyright The London School of Economics and Political Science 2003.

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Bibliographic Info

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

Volume (Year): 70 (2003)
Issue (Month): 278 (05)
Pages: 251-265

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Handle: RePEc:bla:econom:v:70:y:2003:i:278:p:251-265

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  1. Steinar Holden, 2001. "Monetary Regimes and the Co-Ordination of Wage Setting," CESifo Working Paper Series 429, CESifo Group Munich.
  2. Holden, Steinar, 1991. "Exchange rate policy and wage formation in an economy with many trade unions," European Economic Review, Elsevier, vol. 35(8), pages 1543-1557, December.
  3. Hafiz A. Akhand, 1992. "Policy Credibility and Inflation in a Wage-Setting Game," Canadian Journal of Economics, Canadian Economics Association, vol. 25(2), pages 407-19, May.
  4. Cubitt, Robin P, 1992. "Monetary Policy Games and Private Sector Precommitment," Oxford Economic Papers, Oxford University Press, vol. 44(3), pages 513-30, July.
  5. Cukierman, Alex & Lippi, Francesco, 1998. "Central Bank Independence, Centralization of Wage Bargaining, Inflation and Unemployment - Theory and Evidence," CEPR Discussion Papers 1847, C.E.P.R. Discussion Papers.
  6. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345.
  7. Rasmussen, Bo Sandemann, 1992. " Union Cooperation and Nontraded Goods in General Equilibrium," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(4), pages 561-79.
  8. Berger, Helge & Jensen, Henrik & Schjelderup, Guttorm, 2001. "To peg or not to peg?: A simple model of exchange rate regime choice in small economies," Economics Letters, Elsevier, vol. 73(2), pages 161-167, November.
  9. Lars E. O. Svensson, 2000. "Open-Economy Inflation Targeting," NBER Working Papers 6545, National Bureau of Economic Research, Inc.
  10. Alex Cukierman & Francesco Lippi, 2000. "Labor Markets and Monetary Union; a Strategic Analysis," Temi di discussione (Economic working papers) 365, Bank of Italy, Economic Research and International Relations Area.
  11. Nicoletta Batini & Andrew G Haldane, 1999. "Forward-looking rules for monetary policy," Bank of England working papers 91, Bank of England.
  12. Cukierman, A. & Lippi, F., 1998. "Central Bank Independence, Centralization of Wage Bargaining, Inflation and Unemployment - Theory and Some Evidence," Discussion Paper 1998-116, Tilburg University, Center for Economic Research.
  13. Vartiainen, Juhana, 1999. "Relative Wages in Monetary Union and Floating," Working Paper Series 155, Trade Union Institute for Economic Research.
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  16. Sorensen, Jan Rose, 1992. " Uncertainty and Monetary Policy in a Wage Bargaining Model," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(3), pages 443-55.
  17. Bo Rasmussen, 1996. "Imperfectly competitive factor markets and price normalization," Journal of Economics, Springer, vol. 63(2), pages 125-138, June.
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  20. Wibaut, Quentin, 1997. "Money as a coordination device," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1997023, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  21. Henrik Jensen, 1993. "International monetary policy cooperation in economies with centralized wage setting," Open Economies Review, Springer, vol. 4(3), pages 269-285, September.
  22. �istein R�island & Ragnar Torvik, 2004. "Exchange rate versus inflation targeting: a theory of output fluctuations in traded and non-traded sectors," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 13(3), pages 265-285.
  23. Skott, Peter, 1997. "Stagflationary Consequences of Prudent Monetary Policy in a Unionized Economy," Oxford Economic Papers, Oxford University Press, vol. 49(4), pages 609-22, October.
  24. Horn, Henrik & Persson, Torsten, 1988. "Exchange rate policy, wage formation and credibility," European Economic Review, Elsevier, vol. 32(8), pages 1621-1636, October.
  25. Rodseth, Asbjorn, 1996. " Exchange Rate versus Price Level Targets and Output Stability," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(4), pages 559-77, December.
  26. Cubitt, Robin P, 1995. " Corporatism, Monetary Policy and Macroeconomic Performance: A Simple Game Theoretic Analysis," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(2), pages 245-59, June.
  27. Soskice, David & Iversen, Torben, 1998. "Multiple Wage-Bargaining Systems in the Single European Currency Area," Oxford Review of Economic Policy, Oxford University Press, vol. 14(3), pages 110-24, Autumn.
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