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International monetary policy cooperation in economies with centralized wage setting

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  • Henrik Jensen

Abstract

We consider a standard two-country monetary policy game with fixed nominal wage contracts. The policy regime is either non-cooperative or cooperative. We extend conventional analyses by deriving the natural rate of employment endogenously through monopoly union decision-making. As unions attempt to affect the real exchange rate, wages are set inefficiently high. Such attempts are shown to be strongest under monetary cooperation. Therefore, in comparison with non-cooperation, employment is lowest, and, in effect, consumer price inflation is highest, under monetary cooperation, i.e., international monetary cooperation is disadvantageous. Copyright Kluwer Academic Publishers 1993

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Bibliographic Info

Article provided by Springer in its journal Open Economies Review.

Volume (Year): 4 (1993)
Issue (Month): 3 (September)
Pages: 269-285

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Handle: RePEc:kap:openec:v:4:y:1993:i:3:p:269-285

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Web page: http://www.springerlink.com/link.asp?id=100323

Related research

Keywords: monetary policy games; international policy coordination; monopoly unions;

References

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  1. Hamada, Koichi, 1976. "A Strategic Analysis of Monetary Interdependence," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 677-700, August.
  2. van der Ploeg, Frederick, 1988. "International policy coordination in interdependent monetary economies," Journal of International Economics, Elsevier, vol. 25(1-2), pages 1-23, August.
  3. Rogoff, Kenneth, 1985. "Can international monetary policy cooperation be counterproductive?," Journal of International Economics, Elsevier, vol. 18(3-4), pages 199-217, May.
  4. Kehoe, Patrick J, 1989. "Policy Cooperation among Benevolent Governments May Be Undesirable," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 289-96, April.
  5. Driffill, John, 1985. " Macroeconomic Stabilization Policy and Trade Union Behaviour as a Repeated Game," Scandinavian Journal of Economics, Wiley Blackwell, vol. 87(2), pages 300-326.
  6. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
  7. Buiter,Willem H. & Marston,Richard C., 1986. "International Economic Policy Coordination," Cambridge Books, Cambridge University Press, number 9780521337809.
  8. Marcus Miller & Mark Salmon, 1985. "Policy Coordination And Dynamic Games," NBER Chapters, in: International Economic Policy Coordination, pages 184-227 National Bureau of Economic Research, Inc.
  9. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  10. Oswald, Andrew J, 1985. " The Economic Theory of Trade Unions: An Introductory Survey," Scandinavian Journal of Economics, Wiley Blackwell, vol. 87(2), pages 160-93.
  11. Richard C. Marston, 1983. "Stabilization Policies in Open Economies," NBER Working Papers 1117, National Bureau of Economic Research, Inc.
  12. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
  13. Canzoneri, Matthew B. & Henderson, Dale W., 1988. "Is sovereign policymaking bad?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 28(1), pages 93-140, January.
  14. Jensen, Henrik, 1993. "Uncertainty in interdependent economies with monopoly unions," Journal of Macroeconomics, Elsevier, vol. 15(1), pages 1-24.
  15. Marston, Richard C., 1985. "Stabilization policies in open economies," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 17, pages 859-916 Elsevier.
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Citations

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Cited by:
  1. Vincenzo Cuciniello, 2009. "The welfare effect of foreign monetary conservatism with non-atomistic wage setters," Working Papers 200908, Center for Fiscal Policy, Swiss Federal Institute of Technology Lausanne.
  2. Cukierman, Alex & Lippi, Francesco, 1999. "Labour Markets and Monetary Union: A Strategic Analysis," CEPR Discussion Papers 2236, C.E.P.R. Discussion Papers.
  3. Cuciniello, Vincenzo, 2013. "Large labour unions and terms-of-trade externality," Economics Letters, Elsevier, vol. 120(1), pages 135-138.
  4. Helge Berger & Carsten Hefeker & Ronnie Schöb, 2001. "Optimal Central Bank Conservatism and Monopoly Trade Unions," CESifo Working Paper Series 407, CESifo Group Munich.
  5. Holden,S., 1999. "Wage setting under different monetary regimes," Memorandum 12/1999, Oslo University, Department of Economics.
  6. Joseph Daniels & David VanHoose, 1998. "Two-Country Models of Monetary and Fiscal Policy: What Have We Learned? What More Can We Learn?," Open Economies Review, Springer, vol. 9(3), pages 265-284, July.
  7. Henrik Jensen, 1992. "Time inconsistency problems and commitments of monetary and fiscal policies," Journal of Economics, Springer, vol. 56(3), pages 247-266, October.
  8. 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.

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