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Policy Credibility and Inflation in a Wage-Setting Game

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Author Info
Hafiz A. Akhand
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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Publisher 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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  1. Steinar Holden, 2002. "Wage Setting Under Different Monetary Regimes," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
  2. Juha Kilponen & David Mayes & Jouko Vilmunen, 1999. "Labour Market Flexibility in Northern Europe," One Europe or Several? Working Papers 2, One-Europe Programme. [Downloadable!]
    Other versions:
  3. Kilponen, Juha, 1999. "Central Bank Independence and Wage Bargaining Structure - Empirical Evidence," Research Discussion Papers 9/1999, Bank of Finland. [Downloadable!]
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  4. 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. [Downloadable!]
    Other versions:
  5. Timo Henckel, 2006. "Monopolistic Unions, Brainard Uncertainty, And Optimal Monetary Policy," CAMA Working Papers 2006-16, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
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