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Strategic Monetary Policy with Non-Atomistic Wage-Setters

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Author Info
Francesco Lippi () (Bank of Italy, Research Department and CEPR)

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Abstract

This paper proposes a monetary policy game based on a microfounded general equilibrium model. The approach allows some key features of the policy game (such as the policy maker's gap between desired and "natural" output) to be related to basic technological and preference parameters. Moreover, it shows how results are affected by the presence of nonatomistic private agents. A main finding which is emphasized here is that, with nonatomistic labor unions, the policy maker's aversion to inflation may have a permanent effect on employment even if all agents have rational expectations and complete information. The traditional result, whereby equilibrium employment is unrelated to the policy maker's aversion to inflation, is obtained as a special case when private agents are atomistic. The model is used to reexamine the welfare effects of monetary policy delegation to a "conservative" central bank.

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File URL: http://www.bancaditalia.it/pubblicazioni/econo/temidi/td00/td374_00/td374/tema_374it.pdf
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Paper provided by Bank of Italy, Economic Research Department in its series Temi di discussione (Economic working papers) with number 374.

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Date of creation: Jun 2000
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Handle: RePEc:bdi:wptemi:td_374_00

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  1. Michael Woodford, 2001. "Inflation Stabilization and Welfare," NBER Working Papers 8071, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September. [Downloadable!] (restricted)
  3. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November. [Downloadable!] (restricted)
  4. Cukierman, Alex & Lippi, Francesco, 1999. "Central bank independence, centralization of wage bargaining, inflation and unemployment:: Theory and some evidence," European Economic Review, Elsevier, vol. 43(7), pages 1395-1434, June. [Downloadable!] (restricted)
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  5. Francesco Lippi, 2000. "Strategic Monetary Policy with Non Atomistic Wage Setters," Econometric Society World Congress 2000 Contributed Papers 1354, Econometric Society. [Downloadable!]
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  6. Lippi, Francesco, 2001. "Strategic Monetary Policy with Non-Atomistic Wage-Setters: Some Evidence," CEPR Discussion Papers 2819, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  7. Griffin, Peter, 1992. "The Impact of Affirmative Action on Labor Demand: A Test of Some Implications of the Le Chatelier Principle," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 251-60, May. [Downloadable!] (restricted)
  8. Ireland, Peter N., 1997. "Sustainable monetary policies," Journal of Economic Dynamics and Control, Elsevier, vol. 22(1), pages 87-108, November. [Downloadable!] (restricted)
  9. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August. [Downloadable!] (restricted)
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  10. Piyabha Kongsamut & Danyang Xie & Sergio Rebelo, 2001. "Beyond Balanced Growth," IMF Working Papers 01/85, International Monetary Fund.
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  11. Stefania Albanesi & V.V. Chari & Lawrence J. Christiano, . "Expectation Traps and Monetary Policy," Working Papers 198, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
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  12. Robert King & Alexander L. Wolman, 1999. "What Should the Monetary Authority Do When Prices Are Sticky?," NBER Chapters, in: Monetary Policy Rules, pages 349-404 National Bureau of Economic Research, Inc. [Downloadable!]
  13. Svensson, Lars E O & Woodford, Michael, 2004. "Implementing Optimal Policy Through Inflation-Forecast Targeting," CEPR Discussion Papers 4229, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  14. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," NBER Working Papers 8403, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Denny, Michael & Fuss, Melvyn A, 1977. "The Use of Approximation Analysis to Test for Separability and the Existence of Consistent Aggregates," American Economic Review, American Economic Association, vol. 67(3), pages 404-18, June. [Downloadable!] (restricted)
  16. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June. [Downloadable!] (restricted)
  17. David Soskice & Torben Iversen, 2000. "The Nonneutrality Of Monetary Policy With Large Price Or Wage Setters," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 265-284, February. [Downloadable!] (restricted)
  18. Neiss, Katharine S, 1999. "Discretionary Inflation in a General Equilibrium Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 357-74, August.
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