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Strategic Monetary Policy with Non-Atomistic Wage Setters: A Case for Non-Neutrality

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  • Lippi, Francesco

Abstract

The literature on monetary policy games establishes that policy makers' attempts to boost employment above the 'natural' rate are futile and result in an inflationary bias when wage setters have rational expectations and the policy maker cannot precommit. This implies that a variation of the policy maker's degree of inflation aversion does not have a systematic effect on the employment level. This paper shows that this last neutrality result hinges crucially on the assumption that wage setters are atomistic. In the presence of non-atomistic agents, who set nominal wages and have monopolistic power, the policy maker's inflation aversion may have a systematic effect on equilibrium employment even if agents have rational expectations and complete information. The model is used to re-assess the welfare implications of monetary policy delegation to a 'conservative' central bank.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2218.

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Date of creation: Aug 1999
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Handle: RePEc:cpr:ceprdp:2218

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Related research

Keywords: Inflation; Monopolistic Power; Non-Atomism; Non-Neutrality; Unemployment; Unions;

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Cited by:
  1. Nicola Acocella & Giovanni Di Bartolomeo, 2001. "Wage and public expenditure setting in a monetary union," Working Papers 42, University of Rome La Sapienza, Department of Public Economics.
  2. Alain Borghijs & Sjef Ederveen & Ruud de Mooij, 2003. "European wage coordination; nightmare or dream to come true? An economic analysis of wage bargaining institutions in the EU," CPB Discussion Paper 17, CPB Netherlands Bureau for Economic Policy Analysis.
  3. GrĂ¼ner, Hans Peter, 2010. "Why EMU is not a failure," European Journal of Political Economy, Elsevier, vol. 26(1), pages 1-11, March.
  4. Cukierman, A. & Lippi, F., 1999. "Labor markets and Monetary Union: A Strategic Analysis," Discussion Paper 1999-100, Tilburg University, Center for Economic Research.
  5. Lippi, Francesco, 2002. "Revisiting the case for a populist central banker," European Economic Review, Elsevier, vol. 46(3), pages 601-612, March.
  6. Vincenzo Cuciniello, 2007. "Optimal monetary policy under a floating regime with non-atomistic wage setters," IHEID Working Papers 12-2007, Economics Section, The Graduate Institute of International Studies.
  7. Bernd Hayo & Carsten Hefeker, 2001. "Do We Really Need Central Bank Independence? A Critical Re- examination," Macroeconomics 0103006, EconWPA.
  8. repec:onb:oenbwp:y::i:63:b:1 is not listed on IDEAS
  9. Markus Knell, 2002. "Wage Formation in Open Economies and the Role of Monetary and Wage-Setting Institutions," Working Papers 63, Oesterreichische Nationalbank (Austrian Central Bank).
  10. Hayo, Bernd & Hefeker, Carsten, 2002. "Reconsidering central bank independence," European Journal of Political Economy, Elsevier, vol. 18(4), pages 653-674, November.

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