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Stabilisation, Policy Targets and Unemployment in Imperfectly Competitive Economies

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  • Bratsiotis, George
  • Martin, Christopher

Abstract

This paper argues that the rate of equilibrium unemployment depends on the objectives of the central bank. In a model where the central bank uses monetary policy to stabilize the economy, the authors show that unemployment and inflation will be lower with an inflation target than with targets for output, money, or nominal GDP. The intuition for this is that the elasticities of demand in both the product and the labor markets are greater when there is an inflation target; they show that this leads to a lower mark-up of price over marginal cost and makes wages more sensitive to unemployment. Copyright 1999 by The editors of the Scandinavian Journal of Economics.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 101 (1999)
Issue (Month): 2 (June)
Pages: 241-56

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Handle: RePEc:bla:scandj:v:101:y:1999:i:2:p:241-56

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Web page: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9442

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Cited by:
  1. repec:onb:oenbwp:y::i:63:b:1 is not listed on IDEAS
  2. Vincenzo Cuciniello, 2011. "The Welfare Effect of Foreign Monetary Conservatism with Nonatomistic Wage Setters," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(8), pages 1719-1734, December.
  3. Jordahl, Henrik & Laséen, Stefan, 1999. "Central Bank Conservatism and Labor Market Reform," Working Paper Series 1999:23, Uppsala University, Department of Economics.
  4. Phillip Lawler & Jonathan James, 2005. "Macroeconomic Shocks and Central Bank Disclosure Policy: Is increased Transparency Necessarily Beneficial?," Money Macro and Finance (MMF) Research Group Conference 2005 27, Money Macro and Finance Research Group.
  5. George J. Bratsiotis, 2005. "Influential Price and Wage Setters, Monetary Policy and Real Effects," The School of Economics Discussion Paper Series 0540, Economics, The University of Manchester.
  6. Jordahl, Henrik & Laseen, Stefan, 2005. "Central bank conservatism and labor market regulation," European Journal of Political Economy, Elsevier, vol. 21(2), pages 345-363, June.
  7. Larsson, Anna, 2011. "On labour mobility and the neutrality of money in unionised economies," Economic Modelling, Elsevier, vol. 28(1-2), pages 396-403, January.
  8. Markus Knell, 2002. "Wage Formation in Open Economies and the Role of Monetary and Wage-Setting Institutions," Working Papers 63, Oesterreichische Nationalbank (Austrian Central Bank).
  9. Larsson, Anna & Zetterberg, Johnny, 2003. "Does Inflation Targeting Matter for Labour Markets? – Some Empirical Evidence," Working Paper Series 191, Trade Union Institute for Economic Research.
  10. Giovanni Di Bartolomeo & Patrizio Tirelli & Nicola Acocella, 2013. "Trend inflation as a workers’ discipline device," Empirica, Springer, vol. 40(2), pages 215-235, May.
  11. Pereau, Jean-Christophe & Sanz, Nicolas, 2008. "Unemployment and monetary policy with large price setters and free entry," Economic Modelling, Elsevier, vol. 25(1), pages 70-74, January.

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