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International monetary policy cooperation in economies with centralized wage setting

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Author Info
Henrik Jensen

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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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File URL: http://hdl.handle.net/10.1007/BF01000045
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Publisher 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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Related research
Keywords: monetary policy games; international policy coordination; monopoly unions;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Rogoff, Kenneth, 1985. "Can international monetary policy cooperation be counterproductive?," Journal of International Economics, Elsevier, vol. 18(3-4), pages 199-217, May. [Downloadable!] (restricted)
  2. Richard C. Marston, 1985. "Stabilization Policies in Open Economies," NBER Working Papers 1117, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. 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. [Downloadable!] (restricted)
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  4. Driffill, John, 1985. " Macroeconomic Stabilization Policy and Trade Union Behaviour as a Repeated Game," Scandinavian Journal of Economics, Blackwell Publishing, vol. 87(2), pages 300-326.
  5. 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. [Downloadable!] (restricted)
  6. 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. [Downloadable!] (restricted)
  7. Jensen, Henrik, 1993. "Uncertainty in interdependent economies with monopoly unions," Journal of Macroeconomics, Elsevier, vol. 15(1), pages 1-24. [Downloadable!] (restricted)
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  8. 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. [Downloadable!] (restricted)
  9. Kehoe, Patrick J, 1989. "Policy Cooperation among Benevolent Governments May Be Undesirable," Review of Economic Studies, Blackwell Publishing, vol. 56(2), pages 289-96, April. [Downloadable!] (restricted)
  10. 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. [Downloadable!] (restricted)
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  11. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December. [Downloadable!] (restricted)
  12. Hamada, Koichi, 1976. "A Strategic Analysis of Monetary Interdependence," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 677-700, August. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alex Cukierman & Francesco Lippi, 2000. "Labor Markets and Monetary Union; a Strategic Analysis," Temi di discussione (Economic working papers) 365, Bank of Italy, Economic Research Department. [Downloadable!]
    Other versions:
  2. Helge Berger & Carsten Hefeker & Ronnie Schoeb, 2001. "Optimal Central Bank Conservatism and Monopoly Trade Unions," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  3. Steinar Holden, 2002. "Wage Setting Under Different Monetary Regimes," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  4. Henrik Jensen, 1992. "Time inconsistency problems and commitments of monetary and fiscal policies," Journal of Economics, Springer, vol. 56(3), pages 247-266, October. [Downloadable!] (restricted)
    Other versions:
  5. 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. [Downloadable!] (restricted)
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