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Trend inflation as a workers disciplining device in a general equilibrium model

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  • Giovanni Di Bartolomeo
  • Patrizio Tirelli

    ()

  • Nicola Acocella

Abstract

In New Keynesian models nominal rigidities determine socially ineffi - cient outcomes. Our paper reverses this view: properly designed monetary policies may take advantage of predetermined nominal wages to discipline monopolistic wage setters. This, in turn, requires accepting a non-zero in- flation rate. Discretionary monetary policy is effective when wage setters are non atomistic. Inflation targeting has real effects irrespective of the degree of labor market centralization.

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File URL: http://dipeco.economia.unimib.it/repec/pdf/mibwpaper142.pdf
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Bibliographic Info

Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 142.

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Length: 25 pages
Date of creation: Jul 2008
Date of revision: Jul 2008
Handle: RePEc:mib:wpaper:142

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Keywords: inflation bias; discretionary monetary policy; non-zero inflation targeting; unemployment; strategic wage setters;

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Cited by:
  1. Giovanni Di Bartolomeo & Patrizio Tirelli & Nicola Acocella, 2010. "Trend inflation, endogenous mark-ups and the non-vertical Phillips curve," Working Papers 186, University of Milano-Bicocca, Department of Economics, revised May 2010.

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