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Wage formation and monetary policy rules

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  • Funke, Norbert
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    Abstract

    This paper characterizes the wage setting behavior in a totally unionized economy under different monetary policy rules. The wage formation strategy of the union can be either aggressive or cooperative.. As long as the union is fully cooperative and in the absence of shocks, the government can completely reach its macroeconomic targets: full employment and price stability. If, however, the union becomes aggressive, a constant money supply rule has a nominal wage inflation bias under certain plausible- assumptions. By changing the rules of the game, e.g. following a nominal GNP or price level (inflation) rule, wage demands would be lower and the economy better off.

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    File URL: http://econstor.eu/bitstream/10419/47048/1/256685959.pdf
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    Bibliographic Info

    Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 514.

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    Date of creation: 1992
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    Handle: RePEc:kie:kieliw:514

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    1. Meade, James E, 1978. "The Meaning of "Internal Balance"," Economic Journal, Royal Economic Society, vol. 88(351), pages 423-35, September.
    2. Bennett T. McCallum, 1987. "The case for rules in the conduct of monetary policy: a concrete example," Economic Review, Federal Reserve Bank of Richmond, issue Sep, pages 10-18.
    3. Scheide, Joachim, 1989. "A k-percent rule for monetary policy in West Germany," Open Access Publications from Kiel Institute for the World Economy 1396, Kiel Institute for the World Economy (IfW).
    4. Joachim Scheide, 1989. "A K-percent rule for monetary policy in West Germany," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 125(2), pages 326-336, June.
    5. 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.
    6. Tabellini, Guido, 1988. "Centralized Wage Setting and Monetary Policy in a Reputational Equilibrium," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(1), pages 102-18, February.
    7. Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April.
    8. Victor E. Argy, 1991. "Nominal Income Targeting - A Critical Evaluation," IMF Working Papers 91/92, International Monetary Fund.
    9. 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.
    10. Jeffrey A. Frankel and Menzie Chinn., 1991. "The Stabilizing Properties of a Nominal GNP Rule in an Open Economy," Economics Working Papers 91-166, University of California at Berkeley.
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    Cited by:
    1. Eijffinger, S.C.W. & Schaling, E., 1993. "Central bank independence: Theory and evidence (Revised version)," Discussion Paper 1993-25, Tilburg University, Center for Economic Research.

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