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Openness, centralized wage bargaining, and inflation

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  • Daniels, Joseph P.
  • Nourzad, Farrokh
  • VanHoose, David D.

Abstract

This paper develops a model of an open economy containing both sectors in which wages are market-determined and sectors with wage-setting arrangements. A portion of the latter group of sectors coordinate their wages, taking into account that their collective actions influence the equilibrium inflation outcome in an environment in which the central bank engages in discretionary monetary policymaking. Key predictions forthcoming from this model are (1) increased centralization of wage setting initially causes inflation to increase at low degrees of wage centralization but then, as wage centralization increases, results in an inflation dropoff; (2) a greater degree of centralized wage setting reduces the inflation-restraining effect of greater central bank independence; and (3) increased openness is more likely to reduce inflation in nations with less centralized wage bargaining. Analysis of data for seventeen nations for the period 1970-1999 provides generally strong and robust empirical support for all three of these predictions.

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Bibliographic Info

Article provided by Elsevier in its journal European Journal of Political Economy.

Volume (Year): 22 (2006)
Issue (Month): 4 (December)
Pages: 969-988

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Handle: RePEc:eee:poleco:v:22:y:2006:i:4:p:969-988

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Web page: http://www.elsevier.com/locate/inca/505544

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Cited by:
  1. Jørgen Drud Hansen & Hassan Molana & Catia Montagna & Jørgen Ulff-Møller Nielsen, 2010. "Work Hours, Social Value of Leisure and Globalisation," Dundee Discussion Papers in Economics, Economic Studies, University of Dundee 229, Economic Studies, University of Dundee.
  2. Hartmut Egger & Daniel Etzel, 2012. "Union Wage Setting and International Trade," CESifo Working Paper Series 3929, CESifo Group Munich.
  3. Evans, Richard W., 2012. "Is openness inflationary? Policy commitment and imperfect competition," Journal of Macroeconomics, Elsevier, Elsevier, vol. 34(4), pages 1095-1110.
  4. Gernot Pehnelt, 2007. "Globalisation and Inflation in OECD Countries," Jena Economic Research Papers, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics 2007-055, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  5. Daniels, Joseph P. & VanHoose, David D., 2013. "Exchange-rate pass through, openness, and the sacrifice ratio," Journal of International Money and Finance, Elsevier, Elsevier, vol. 36(C), pages 131-150.
  6. Daniels, Joseph P. & VanHoose, David D., 2009. "Openness, income-tax progressivity, and inflation," Journal of Macroeconomics, Elsevier, Elsevier, vol. 31(3), pages 485-491, September.
  7. Cavallero, Alessandro, 2011. "The convergence of inflation rates in the EU-12 area: A distribution dynamics approach," Journal of Macroeconomics, Elsevier, Elsevier, vol. 33(2), pages 341-357, June.
  8. Joseph P. Daniels & David D. VanHoose, 2007. "Trade Openness, Capital Mobility, and the Sacrifice Ratio," Working Papers and Research, Marquette University, Center for Global and Economic Studies and Department of Economics 0701, Marquette University, Center for Global and Economic Studies and Department of Economics.
  9. Bowdler, Christopher & Nunziata, Luca, 2010. "Labor market structures and the sacrifice ratio," Journal of Macroeconomics, Elsevier, Elsevier, vol. 32(3), pages 816-826, September.
  10. Hansen, Jørgen Drud & Nielsen, Jørgen Ulff-Møller & Molana, Hassan & Montagna, Catia, 2010. "Work Hours, Social Value of Leisure and Globalisation," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2010-08, Scottish Institute for Research in Economics (SIRE).
  11. Magali Jaoul-Grammare & Isabelle Terraz, 2010. "Syndicalisation et croissance économique : y a-t-il une exception française ?," Working Papers of BETA 2010-25, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  12. Marzinotto Benedicta, 2008. "Why so much wage restraint in EMU? The role of country size - Integrating trade theory with monetary policy regime accounts," wp.comunite, Department of Communication, University of Teramo 0035, Department of Communication, University of Teramo.

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