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Conclusions and outlook

In: The Interaction of Monetary Policy and Wage Bargaining in the European Monetary Union

Author

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  • Sebastian Dullien

    (Financial Times Deutschland)

Abstract

This book started with a question: how do wage bargainers and monetary policy jointly influence output, employment and inflation? While older standard models concluded that it was wage bargainers who set real wages, which determine output and employment, while the central bank just set the growth rate of money supply, thus determining the rate of inflation, recent literature, as represented by the SICCD models has come to a different conclusion: the setup of a monetary policy rule can change the wage setters’ behaviour. If, for example, it is clear that the central bank will set a given nominal money supply no matter what the wage setters are doing, unions can increase the real money supply (Soskice–Iversen 2000) by lowering their wage demands and thus pushing down prices. The increased real money supply would then lead to higher output and employment. If wage setters are a large enough force to be acting strategically, and if they care enough about unemployment, they can be expected to make use of this possibility. A monetary policy rule can thus have non-neutral effects in the long run.

Suggested Citation

  • Sebastian Dullien, 2004. "Conclusions and outlook," Palgrave Macmillan Books, in: The Interaction of Monetary Policy and Wage Bargaining in the European Monetary Union, chapter 8, pages 228-231, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-00614-0_8
    DOI: 10.1057/9780230006140_8
    as

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