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Aspirations, bargaining power, and macroeconomic performance

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  • Mark Setterfield
  • Ted Lovejoy

Abstract

A model of aggregate wage and price setting is developed that nests competing hypotheses concerning the role of worker' aspirations and bargaining power in the wage bargain. It is shown that although aspirations and bargaining power always affect inflation in the short run, there is disagreement as to whether or not they influence macroeconomic performance in the long run. Empirical results suggest that a model in which aspirations and bargaining power affect the long-run rate of unemployment best fits the data and most accurately forecasts the rate of inflation. The implications of this result for the potential future performance of the U.S. economy and for macroeconomic policy are explored.

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Bibliographic Info

Article provided by M.E. Sharpe, Inc. in its journal Journal of Post Keynesian Economics.

Volume (Year): 29 (2006)
Issue (Month): 1 (October)
Pages: 117-148

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Handle: RePEc:mes:postke:v:29:y:2006:i:1:p:117-148

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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=109348

Related research

Keywords: aspirations; bargaining power; inflation; macroeconomic policy; unemployment;

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Cited by:
  1. Yun Kim & Mark Setterfield & Yuan Mei, 2013. "A Theory of Aggregate Consumption," Working Papers 1301, Trinity College, Department of Economics.
  2. Eckhard Hein & Achim Truger, 2008. "Fiscal policy in the macroeconomic policy mix: A Critique of the New Consensus Model and a comparison of macroeconomic policies in France, Germany, the UK and Sweden from a Post-Keynesian perspective," IMK Working Paper 03-2008, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  3. Yun Kim & Mark Setterfield & Yuan Mei, 2012. "Aggregate Consumption and Debt Accumulation: An Empirical Examination of US Household Behavior," Working Papers 1204, Trinity College, Department of Economics.

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