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Policy Credibility and Inflation in a Wage-Setting Game

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  • Hafiz A. Akhand
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    Abstract

    This paper combines the conventional monetary policy game with a wage-setting game among several noncooperating wage setters (each with some monopoly power). The inflationary bias in market economies is explained in terms of the wage-competition bias. This bias does not disappear even when the central bank communicates its policy goals precisely and credibly. In a policy game with several noncooperative monopolistic wage setters and a central bank, if discretionary policy is interpreted as wage setters' being Stackelberg leaders relative to the central bank, a discretionary policy leads to both higher inflation and lower output.

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    File URL: http://links.jstor.org/sici?sici=0008-4085%28199205%2925%3A2%3C407%3APCAIIA%3E2.0.CO%3B2-5
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    Bibliographic Info

    Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

    Volume (Year): 25 (1992)
    Issue (Month): 2 (May)
    Pages: 407-19

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    Handle: RePEc:cje:issued:v:25:y:1992:i:2:p:407-19

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    Cited by:
    1. Kilponen, Juha, 1999. "The Inflation Target and the Structure of Labour Markets: Implications for Common Monetary Policy," Research Discussion Papers 7/1999, Bank of Finland.
    2. Agiomirgianakis, George M., 1998. "Monetary Policy Games and International Migration of Labor in Interdependent Economies," Journal of Macroeconomics, Elsevier, vol. 20(2), pages 243-266, April.
    3. Kilponen, Juha, 1999. "Central Bank Independence and Wage Bargaining Structure - Empirical Evidence," Research Discussion Papers 9/1999, Bank of Finland.
    4. Holden,S., 1999. "Wage setting under different monetary regimes," Memorandum 12/1999, Oslo University, Department of Economics.

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