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Productivity Shocks And Optimal Monetary Policy In A Unionized Labor Market Economy

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  • FABRIZIO MATTESINI
  • LORENZA ROSSI

Abstract

A New Keynesian model characterized by labor indivisibilities, unemployment and a unionized labor market is presented. The bargaining process between unions and firms introduces real wage rigidity and creates an endogenous trade-off between inflation and output stabilization. Under an optimal discretionary monetary policy a negative productivity shock requires an increase in the nominal interest rate. An operational instrument rule will satisfy the Taylor principle, but will also require that the nominal interest rate does not necessarily respond one to one to an increase in the efficient rate of interest. Copyright � 2008 The Authors. Journal compilation � 2008 Blackwell Publishing Ltd and The University of Manchester.

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Bibliographic Info

Article provided by University of Manchester in its journal Manchester School.

Volume (Year): 76 (2008)
Issue (Month): 5 (09)
Pages: 578-611

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Handle: RePEc:bla:manchs:v:76:y:2008:i:5:p:578-611

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Cited by:
  1. Nymoen, Ragnar & Swensen, Anders Rygh & Tveter, Eivind, 2012. "Interpreting the evidence for New Keynesian models of inflation dynamics," Journal of Macroeconomics, Elsevier, Elsevier, vol. 34(2), pages 253-263.
  2. Angelo Baglioni & Andrea Monticini, 2008. "The intraday interest rate under a liquidity crisis: the case of August 2007," DISCE - Quaderni dell'Istituto di Economia e Finanza, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) ief0083, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  3. Ester Faia & Lorenza Rossi, 2010. "Unions Power, Collective Bargaining and Optimal Monetary Policy," Quaderni di Dipartimento, University of Pavia, Department of Economics and Quantitative Methods 126, University of Pavia, Department of Economics and Quantitative Methods.
  4. Giuseppe Mastromatteo, 2011. "The Debate on the Crisis: Recent Reappraisals of the Concept of Functional Finance," DISCE - Quaderni dell'Istituto di Economia e Finanza, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) ief0105, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  5. Luca Colombo & Herbert Dawid & Kordian Kabus, 2007. "When do Thick Venture Capital Markets Foster Innovation? An Evolutionary Analysis," DISCE - Quaderni dell'Istituto di Economia e Finanza, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) ief0074, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  6. Sandro Brusco & Luca Colombo & Umberto Galmarini, 2010. "Local Governments Tax Autonomy, Lobbying, and Welfare," DISCE - Quaderni dell'Istituto di Economia e Finanza, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) ief0097, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  7. Giuseppe Mastromatteo, 2011. "H.P. Minsky And Policies To Countervail Crises," DISCE - Quaderni dell'Istituto di Economia e Finanza, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) ief0102, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  8. Stefano Colombo, 2008. "Discriminatory prices, endogenous locations and the Prisoner Dilemma problem," DISCE - Quaderni dell'Istituto di Economia e Finanza, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) ief0079, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  9. Maria Flavia Ambrosanio & Massimo Bordignon & Floriana Cerniglia, 2008. "Constitutional reforms, fiscal decentralization and regional fiscal flows in Italy," DISCE - Quaderni dell'Istituto di Economia e Finanza, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) ief0084, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).

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