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Monetary Policy and Nominal Rigidities under Low Inflation

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Author Info
Steinar Holden ()

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Abstract

In most European countries, money wages are given in collective agreements or individual employment contracts, and the employer cannot unilaterally cut wages, even after the expiration of a collective agreement. Ceteris paribus, workers have a stronger bargaining position when they try to prevent a cut in money wages. If inflation is so low that some money wages have to be cut, workers' stronger bargaining position requires higher unemployment in equilibrium. However, inflation is more stable when money wage rigidity binds, providing an incentive for monetary policy makers to choose a low target for inflation, which is easier to fulfil.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 481.

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Date of creation: 2001
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Handle: RePEc:ces:ceswps:_481

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Related research
Keywords: Nominal wage rigidity; labour contracts; monetary policy; inflation; equilibrium unemployment;

Other versions of this item:

Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
J60 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - General
K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Shafir, Eldar & Diamond, Peter & Tversky, Amos, 1997. "Money Illusion," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 341-74, May.
  2. Holden, S., 1998. "Wage Drift and the Relevance of Centralised Wage Setting," Memorandum 04/1998, Oslo University, Department of Economics.
    Other versions:
  3. Houba, Harold & Bolt, Wilko, 2000. "Holdouts, backdating and wage negotiations," European Economic Review, Elsevier, vol. 44(9), pages 1783-1800, October. [Downloadable!] (restricted)
  4. Michael Reutter & Hans-Werner Sinn, 2000. "The Minimum Inflation Rate for Euroland," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  5. Fehr, Ernst, 2000. "The Robustness and Real Consequences of Nominal Wage Rigidity," CEPR Discussion Papers 2516, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. Orietta DESSY, 2004. "Wage rigidity in Italy," Departemental Working Papers 2004-18, Department of Economics University of Milan Italy. [Downloadable!]
  7. Stanley Fischer, 1996. "Why are central banks pursuing long-run price stability?," Proceedings, Federal Reserve Bank of Kansas City, pages 7-34. [Downloadable!]
  8. Ernst Fehr & Lorenz Goette, 2000. "Robustness and Real Consequences of Nominal Wage Rigidity," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  9. Steinar Holden, 2001. "Does Price Stability Exacerbate Labour Market Rigidities in the EMU?," Empirica, Springer, vol. 28(4), pages 403-418, December. [Downloadable!] (restricted)
    Other versions:
  10. Steinar Holden, 1999. "Renegotiation and the Efficiency of Investments," RAND Journal of Economics, The RAND Corporation, vol. 30(1), pages 106-119, Spring. [Downloadable!] (restricted)
  11. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January. [Downloadable!] (restricted)
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  13. Holden, S., 1989. "Wage Drift And Bargaining: Evidence From Norway," Papers 348, London School of Economics - Centre for Labour Economics.
    Other versions:
  14. Holden, S., 1990. "Wage Bargaining, Nominal Rigidities and Inflation," Memorandum 27/1990, Oslo University, Department of Economics.
  15. Kimura, Takeshi & Ueda, Kazuo, 2001. "Downward Nominal Wage Rigidity in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 15(1), pages 50-67, March. [Downloadable!] (restricted)
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  17. Summers, Lawrence, 1991. "How Should Long-Term Monetary Policy Be Determined? Panel Discussion," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 625-31, August. [Downloadable!] (restricted)
  18. Moene, Karl O, 1988. "Unions' Threats and Wage Determination," Economic Journal, Royal Economic Society, vol. 98(391), pages 471-83, June. [Downloadable!] (restricted)
  19. Spencer, David E, 1998. "The Relative Stickiness of Wages and Prices," Economic Inquiry, Oxford University Press, vol. 36(1), pages 120-37, January.
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  21. Smith, Jennifer C, 2000. "Nominal Wage Rigidity in the United Kingdom," Economic Journal, Royal Economic Society, vol. 110(462), pages C176-95, March. [Downloadable!] (restricted)
  22. Holden, Steinar, 1994. "Wage bargaining and nominal rigidities," European Economic Review, Elsevier, vol. 38(5), pages 1021-1039, May. [Downloadable!] (restricted)
  23. Holden, Steinar, 1997. "Wage Bargaining, Holdout, and Inflation," Oxford Economic Papers, Oxford University Press, vol. 49(2), pages 235-55, April. [Downloadable!] (restricted)
  24. Mervyn King, 1999. "Challenges for monetary policy : new and old," Proceedings, Federal Reserve Bank of Kansas City, pages 11-57. [Downloadable!]
  25. Macleod, W.B. & Malcomson, J.M., 1991. "Investments, Hold Up And The Reform Of Market Contracts," Cahiers de recherche 9114, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Lundborg, Per & Sacklén, Hans, 2003. "Low-Inflation Targeting and Unemployment Persistence," Working Paper Series 188, Trade Union Institute for Economic Research. [Downloadable!]
  2. Steinar Holden, 2001. "Does Price Stability Exacerbate Labour Market Rigidities in the EMU?," Empirica, Springer, vol. 28(4), pages 403-418, December. [Downloadable!] (restricted)
    Other versions:
  3. Knoppik, Christoph & Beissinger, Thomas, 2001. "How Rigid are Nominal Wages? Evidence and Implications for Germany," IZA Discussion Papers 357, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  4. Lundborg, Per & Sacklén, Hans, 2001. "Is There a Long Run Unemployment-Inflation Trade-off in Sweden?," Working Paper Series 173, Trade Union Institute for Economic Research. [Downloadable!]
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This page was last updated on 2009-12-14.

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