Policy Credibility and Inflation in a Wage-Setting Game
AbstractThis 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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Bibliographic InfoArticle provided by Canadian Economics Association in its journal Canadian Journal of Economics.
Volume (Year): 25 (1992)
Issue (Month): 2 (May)
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- Steinar Holden, 2003.
"Wage-setting under Different Monetary Regimes,"
London School of Economics and Political Science, vol. 70(278), pages 251-265, 05.
- 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.
- 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.
- Kilponen, Juha, 1999. "Central Bank Independence and Wage Bargaining Structure - Empirical Evidence," Research Discussion Papers 9/1999, Bank of Finland.
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