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Unions Power, Collective Bargaining and Optimal Monetary Policy

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  • Ester Faia

    ()
    (Department of Money and Macro, Goethe University Frankfurt)

  • Lorenza Rossi

    ()
    (Department of Economics and Quantitative Methods, University of Pavia)

Abstract

We study Ramsey policies and optimal monetary policy rules in a model with sticky prices and unionized labour markets. Collective wage bargaining and unions monopoly power dampen wage fluctuations and amplify employment fluctuations relatively to a DNK model. The optimal monetary policy must trade-off between stabilizing inflation and reducing inefficient unemployment fluctuations induced by unions' monopoly power. In this context the monetary authority uses inflation as a tax on unions' rents. The optimal monetary policy rule targets unemployment alongside inflation.

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Bibliographic Info

Paper provided by University of Pavia, Department of Economics and Quantitative Methods in its series Quaderni di Dipartimento with number 126.

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Length: 32 pages
Date of creation: Oct 2010
Date of revision:
Handle: RePEc:pav:wpaper:126

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Cited by:
  1. Carlsson, Mikael & Westermark, Andreas, 2012. "Labor-Market Frictions and Optimal Inflation," Working Paper Series 259, Sveriges Riksbank (Central Bank of Sweden).
  2. Andrea Colciago & Lorenza Rossi, 2013. "Firm Entry, Endogenous Markups and the Dynamics of the Labor Share of Income," DNB Working Papers, Netherlands Central Bank, Research Department 367, Netherlands Central Bank, Research Department.
  3. Janett Neugebauer & Dennis Wesselbaum, 2010. "Staggered Wages, Sticky Prices, and Labor Market Dynamics in Matching Models," Kiel Working Papers 1608, Kiel Institute for the World Economy.

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