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Centralized Wage Setting and Monetary Policy in a Reputational Equilibrium

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  • Tabellini, Guido

Abstract

This paper analyzes a repeated game between the central bank and a centralized trade union. The central bank would be better off if it could commit to a noninflationary strategy. When this commitment is not enforceable, a noninflationary equilibrium can still be sustained by a reputational mechanism if the central bank has superior information about its own objective function. The qualitative properties of this reputational equilibrium are shown to differ from the cases considered in the existing literature where the central bank was modeled as playing a game against competitive labor markets. Copyright 1988 by Ohio State University Press.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 20 (1988)
Issue (Month): 1 (February)
Pages: 102-18

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Handle: RePEc:mcb:jmoncb:v:20:y:1988:i:1:p:102-18

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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References

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  1. David Backus & John Driffill, 1984. "Inflation and Reputation," Working Papers 560, Queen's University, Department of Economics.
  2. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
  3. David Kreps & Robert Wilson, 1999. "Reputation and Imperfect Information," Levine's Working Paper Archive 238, David K. Levine.
  4. Barro, Robert J., 1986. "Reputation in a model of monetary policy with incomplete information," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 3-20, January.
  5. Fudenberg, Drew & Tirole, Jean, 1983. "Sequential Bargaining with Incomplete Information," Review of Economic Studies, Wiley Blackwell, vol. 50(2), pages 221-47, April.
  6. Oswald, Andrew J, 1982. "The Microeconomic Theory of the Trade Union," Economic Journal, Royal Economic Society, vol. 92(367), pages 576-95, September.
  7. Horn, Henrik & Persson, Torsten, 1988. "Exchange rate policy, wage formation and credibility," European Economic Review, Elsevier, vol. 32(8), pages 1621-1636, October.
  8. Kenneth S. Rogoff, 1983. "The optimal degree of commitment to an intermediate monetary target: inflation gains versus stabilization costs," International Finance Discussion Papers 230, Board of Governors of the Federal Reserve System (U.S.).
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Citations

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Cited by:
  1. Sorge, Marco M., 2013. "Robust delegation with uncertain monetary policy preferences," Economic Modelling, Elsevier, vol. 30(C), pages 73-78.
  2. Oliver Pamp, 2004. "Partisan Preferences and Political Institutions: Explaining Fiscal Retrenchment in the European Union," Eastward Enlargement of the Euro-zone Working Papers wp24, Free University Berlin, Jean Monnet Centre of Excellence, revised 15 Oct 2004.
  3. Giordano, Raffaela, 2001. "Wage bargaining and inflation," Research in Economics, Elsevier, vol. 55(4), pages 359-387, December.
  4. Prof. Neil D. Karunaratne, 2000. "Inflation Targeting Macroeconomic Distortions and the Policy Reaction Function," Discussion Papers Series 269, School of Economics, University of Queensland, Australia.
  5. Lawler, Phillip, 2002. "Monetary uncertainty, strategic wage setting and equilibrium employment," Economics Letters, Elsevier, vol. 77(1), pages 35-40, September.
  6. Mayes, David & Vilmunen, Jouko, 1999. "Unemployment in a Small Open Economy: Finland and New Zealand," Research Discussion Papers 10/1999, Bank of Finland.
  7. Funke, Norbert, 1992. "Wage formation and monetary policy rules," Kiel Working Papers 514, Kiel Institute for the World Economy.
  8. Lawler, Phillip, 2007. "Strategic wage setting, inflation uncertainty and optimal delegation," European Journal of Political Economy, Elsevier, vol. 23(4), pages 1105-1118, December.
  9. Manfred Neumann, 1991. "Precommitment by central bank independence," Open Economies Review, Springer, vol. 2(2), pages 95-112, June.
  10. 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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