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Stagflationary Bias and the Interaction of Monetary Policy and Wages in a Unionized Economy

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Author Info
 Cubitt, Robin P
Abstract

The paper investigates the claim of Gylfason and Lindbeck (1994) that a stagflationary bias arises from the interaction between monetary policymaking and wage-setting if, among other things, the government and unions share a concern for inflation. It uses a game theoretic model of this interaction, in which the government plays an economy-wide union. Though simple, this nests several other models as special cases. In that corresponding to Gylfason and Lindbeck's model, the factors which they identify are shown to be sufficient for stagflationary bias, in a specified sense. However, for the union to care about inflation is not a necessary condition. The main result of the paper concerns the more general model. It establishes a set of necessary and sufficient conditions for stagflationary bias, as previously defined. These conditions do not include a shared concern for inflation. The paper comments briefly on the significance of this result for stagflation and economic modeling. Copyright 1997 by Kluwer Academic Publishers

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Article provided by Springer in its journal Public Choice.

Volume (Year): 93 (1997)
Issue (Month): 1-2 (October)
Pages: 165-78
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Handle: RePEc:kap:pubcho:v:93:y:1997:i:1-2:p:165-78

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  1. Nicola Acocella & Giovanni Di Bartolomeo, 2002. "Non-neutrality of monetary policy in policy games," Macroeconomics 0207002, EconWPA. [Downloadable!]
    Other versions:
  2. 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!]
    Other versions:
  3. Nicola Acocella & Giovanni Di Bartolomeo, 2005. "Non-neutrality of economic policy: An application of the Tinbergen-Theil’s approach to a strategic context," Macroeconomics 0504035, EconWPA, revised 26 Apr 2005. [Downloadable!]
    Other versions:
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