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Macroeconomic interdependence under collective wage bargaining

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  • Vincenzo Cuciniello

    ()
    (Chair of International Finance, Ecole Polytechnique Federale de Lausanne (EPFL), Switzerland)

Abstract

This paper uses a two-country, sticky-price model with non-atomistic wage setters to study the role of collective wage bargaining in the propagation of monetary shocks. I find that the welfare transmissions of a monetary expansion are reinforced by different labor market structures. Non-atomistic domestic unions anticipate that their wage demands raise real labor income through a movement of the terms of trade. This leads to an additional channel of transmission of monetary policy that goes through aggregate supply. Yet, workers benefit more from a monetary expansion when the exchange rate pass-through is not limited and the elasticity of substitution across traded goods is sizable. It follows that wage mark-ups charged by unions endogenously vary with those structural parameters. In particular, labor and product market distortions are strategic substitute in affecting the perceived labor demand elasticity.

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Bibliographic Info

Paper provided by Center for Fiscal Policy, Swiss Federal Institute of Technology Lausanne in its series Working Papers with number 200906.

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Length: 28 pages
Date of creation: Jul 2009
Date of revision:
Handle: RePEc:cif:wpaper:200906

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Keywords: non-atomistic agents; interdependence; exchange rate fluctuation; wage setting;

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