Strategic monetary policy in a monetary union with non-atomistic wage setters
AbstractIn a micro-founded framework in line with the new open economy macroeconomics, the paper shows that more centralized wage setting (CWS) and central bank conservatism (CBC) curb unemployment only if labor market distortions are sizeable. When labor market distortions are sufficiently low, employment may be maximized by atomistic wage setters or a populist CB. The comparison between a national monetary policy (NMP) regime and the monetary union (MU) reveals that a move to a MU boosts inflation in the absence of strategic effects. However, when strategic interactions between CB(s) and trade unions are taken into account, the shift to a MU when monopoly distortions are sizeable unambiguously increases welfare and employment either in presence of a sufficiently conservative CB or with a fully CWS. Finally, when labor market distortions are less relevant, an ultra-populist CB or atomistic wage setters are optimal for the society and a shift to a MU regime is unambiguously welfare improving.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 3789.
Date of creation: Apr 2007
Date of revision: Jun 2007
Central bank conservatism; centralization of wage setting; inflationary bias; monetary union;
Find related papers by JEL classification:
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- F31 - International Economics - - International Finance - - - Foreign Exchange
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-07-07 (All new papers)
- NEP-CBA-2007-07-07 (Central Banking)
- NEP-MAC-2007-07-07 (Macroeconomics)
- NEP-MON-2007-07-07 (Monetary Economics)
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