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The Interaction of Monetary Policy and Wages

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Author Info
Gylfason, Thorvaldur
Lindbeck, Assar

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Abstract

This paper focuses on the interaction of monetary policy and wage formation in economies with strong labor unions. Government and unions are viewed as endogenous utility maximizers and the macroeconomic consequences of their strategic interaction are explored with the aid of some elements of simple game theory. Specifically, it is shown (1) how labor unions adjust wages to prices so as to maximize their utility following changes in monetary policy; (2) how the effectiveness of monetary policy is circumscribed without necessarily being nullified by the utility-maximizing reactions of unions; and (3) how the interplay of government and unions can create a persistent tendency towards inflation and unemployment simultaneously. Copyright 1994 by Kluwer Academic Publishers

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Publisher Info
Article provided by Springer in its journal Public Choice.

Volume (Year): 79 (1994)
Issue (Month): 1-2 (April)
Pages: 33-46
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Handle: RePEc:kap:pubcho:v:79:y:1994:i:1-2:p:33-46

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  1. Nicola Acocella & Giovanni Di Bartolomeo, 2002. "Non-neutrality of monetary policy in policy games," Macroeconomics 0207002, EconWPA. [Downloadable!]
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  2. Nicola Acocella & Giovanni Di Bartolomeo, 2003. "Is corporatism feasible?," Macroeconomics 0301003, EconWPA. [Downloadable!]
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  3. Acocella, Nicola & Di Bartolomeo, Giovanni, 2007. "Towards a new theory of economic policy: Continuity and innovation," MPRA Paper 4419, University Library of Munich, Germany. [Downloadable!]
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  4. Acocella, Nicola & Di Bartolomeo, Giovanni & Hibbs Jr., Douglas A., 2004. "Labor market regimes and the effects of monetary policy," Working Papers in Economics 145, Göteborg University, Department of Economics, revised 22 Apr 2005. [Downloadable!]
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  5. Nicola Acocella & Giovanni Di Bartolomeo, 2001. "Wage and public expenditure setting in a monetary union," Macroeconomics 0105002, EconWPA. [Downloadable!]
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  6. Acocella, Nicola & Di Bartolomeo, Giovanni, 2007. "The Cost of Social Pacts," MPRA Paper 3585, University Library of Munich, Germany. [Downloadable!]
  7. Cukierman, A. & Lippi, F., 1999. "Labor markets and monetary union : a strategic analysis," Discussion Paper 100, Tilburg University, Center for Economic Research. [Downloadable!]
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  8. Acocella, Nicola & Di Bartolomeo, Giovanni & Pauwels, Wilfried, 2007. "Is there any scope for corporatism in stabilization policies?," MPRA Paper 3584, University Library of Munich, Germany. [Downloadable!]
  9. Nicola Acocella & Giovanni Di Bartolomeo, 2005. "Tinbergen And Theil Meet Nash: Controllability In Policy Games," Macroeconomics 0504036, EconWPA, revised 06 Sep 2005. [Downloadable!]
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  10. Giovanni Di Bartolomeo & Enrico Marchetti, 2005. "Central banks and information provided to the private sector," Macroeconomics 0504025, EconWPA, revised 27 Apr 2005. [Downloadable!]
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  11. Di Bartolomeo Giovanni & Hughes Hallett Andrew & Acocella Nicola, 2008. "Policy games, policy neutrality and Tinbergen controllability under rational expectations," wp.comunite 0034, Department of Communication, University of Teramo. [Downloadable!]
  12. Nicola Acocella & Giovanni Di Bartolomeo, 2005. "Controllability and non-neutrality of economic policy: The Tinbergen’s approach in a strategic context," Macroeconomics 0504034, EconWPA. [Downloadable!]
  13. Nicola Acocella & Giovanni Di Bartolomeo & Douglas A. Jr. Hibbs, 2003. "Labor market regimes and monetary policy," Macroeconomics 0307012, EconWPA. [Downloadable!]
  14. Nicola Acocella & Giovanni Di Bartolomeo, 2005. "Non-neutrality of economic policy: An application of the Tinbergen-Theil's approach to a strategic context," Working Papers 82, University of Rome La Sapienza, Department of Public Economics. [Downloadable!]
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  15. Nicola Acocella & Giovanni Di Bartolomeo & Patrizio Tirelli, 2004. "The macroeconomics of social pacts," Labor and Demography 0410003, EconWPA. [Downloadable!]
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  16. Blandine ZIMMER, 2005. "Coordination des négociations salariales en UEM : un rôle majeur pour la BCE," Working Papers of BETA 2005-09, Bureau d'Economie Théorique et Appliquée, ULP, Strasbourg. [Downloadable!]
  17. Nicola Acocella & Giovanni Di Bartolomeo, 2003. "Is a conservative central banker a (perfect) substitute for wage coordination?," Macroeconomics 0307011, EconWPA. [Downloadable!]
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  18. Cukierman, A. & Lippi, F., 1998. "Central bank independence, centralization of wage bargaining, inflation and unemployment : theory and some evidence," Discussion Paper 116, Tilburg University, Center for Economic Research. [Downloadable!]
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