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Wage And Public Expenditure Setting In A Monetary Union

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Author Info
Nicola Acocella
Giovanni Di Bartolomeo

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Abstract

European countries have progressively integrated from the point of view of trade and investment and have a common currency now. However, labour market and fiscal institutions have largely retained their national status. The aim of this paper is to examine: a) the possibility for trade unions of internalising external effects stemming from wage setting in a national context; b) the possibility for governments of internalising macroeconomic spillovers deriving from public expenditure at a national level; c) the interactions between fiscal and monetary authorities. We have found a certain gain in terms of employment only when unions cooperate and we are in a regime where the impact of domestic prices on employment through the terms of trade is higher than the impact of domestic prices on employment through the CPI; in this case, a gain in terms also of inflation may take place. In the case of co-operation between governments gains may accrue only in terms of employment or inflation to one or the other country, if the weights put by the governments on price stability are different. This occurs because the central bank, whose overriding objective is price stability, neutralises any rise in the price levels (as well as the positive effects on employment) deriving from the rise in the government expenditures of both countries that take place as a consequence of governments’ co-operation. This paper partially answers recent concern for considering multi-player contexts and asymmetries in open economy analyses. Here, in fact, several kinds of partial coalitions and the effects of asymmetries in players' preferences are studied.

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Paper provided by Sapienza University of Rome, Department of Public Economics in its series Working Papers with number 42.

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Length: 28 pages
Date of creation: Feb 2001
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Handle: RePEc:sap:wpaper:42

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Related research
Keywords: monetary union; policy co-ordination; unions; public expenditure; policy games;

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Find related papers by JEL classification:
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
F15 - International Economics - - Trade - - - Economic Integration
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Richard Clarida & Jordi Gali & Mark Gertler, 1997. "Monetary Policy Rules in Practice: Some International Evidence," NBER Working Papers 6254, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Bleaney, Michael, 1996. "Central Bank Independence, Wage-Bargaining Structure, and Macroeconomic Performance in OECD Countries," Oxford Economic Papers, Oxford University Press, vol. 48(1), pages 20-38, January. [Downloadable!] (restricted)
  3. Rama, Martin, 1994. "Bargaining structure and economic performance in the open economy," European Economic Review, Elsevier, vol. 38(2), pages 403-415, February. [Downloadable!] (restricted)
  4. Cukierman, Alex & Lippi, Francesco, 1999. "Central bank independence, centralization of wage bargaining, inflation and unemployment:: Theory and some evidence," European Economic Review, Elsevier, vol. 43(7), pages 1395-1434, June. [Downloadable!] (restricted)
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  5. Skott, Peter, 1997. "Stagflationary Consequences of Prudent Monetary Policy in a Unionized Economy," Oxford Economic Papers, Oxford University Press, vol. 49(4), pages 609-22, October. [Downloadable!] (restricted)
  6. Corneo, Giacomo, 1995. "National wage bargaining in an internationally integrated product market," European Journal of Political Economy, Elsevier, vol. 11(3), pages 503-520, September. [Downloadable!] (restricted)
  7. Dixon, Huw David & Santoni, Michele, 1997. "Fiscal Policy Coordination with Demand Spillovers and Unionised Labour Markets," Economic Journal, Royal Economic Society, vol. 107(441), pages 403-17, March. [Downloadable!] (restricted)
  8. Giuseppe De Arcangelis & Giorgio Di Giorgio, 1998. "In Search of Monetary Policy Measures: The Case of Italy in the 1990s," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 57(2), pages 213-250, September.
  9. Gylfason, Thorvaldur & Lindbeck, Assar, 1994. " The Interaction of Monetary Policy and Wages," Public Choice, Springer, vol. 79(1-2), pages 33-46, April.
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  10. Bennett T. McCallum & Edward Nelson, 2000. "An Optimizing IS-LM Specification for Monetary Policy and Business Cycle Analysis," NBER Working Papers 5875, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Acocella, Nicola & Ciccarone, Giuseppe, 1997. " Trade Unions, Nonneutrality and Stagflation," Public Choice, Springer, vol. 91(2), pages 161-78, April. [Downloadable!] (restricted)
  12. van der Ploeg, Frederick, 1993. "Channels of international policy transmission," Journal of International Economics, Elsevier, vol. 34(3-4), pages 245-267, May. [Downloadable!] (restricted)
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  13. Cukierman, Alex & Lippi, Francesco, 1999. "Labour Markets and Monetary Union: A Strategic Analysis," CEPR Discussion Papers 2236, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  14. Gruner, Hans Peter & Hefeker, Carsten, 1999. " How Will EMU Affect Inflation and Unemployment in Europe?," Scandinavian Journal of Economics, Blackwell Publishing, vol. 101(1), pages 33-47, March. [Downloadable!] (restricted)
  15. Soskice, David & Iversen, Torben, 1998. "Multiple Wage-Bargaining Systems in the Single European Currency Area," Oxford Review of Economic Policy, Oxford University Press, vol. 14(3), pages 110-24, Autumn.
  16. Blinder, Alan S, 1997. "Distinguished Lecture on Economics in Government: What Central Bankers Could Learn from Academics--And Vice Versa," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 3-19, Spring. [Downloadable!] (restricted)
  17. Svensson, Lars E O, 1987. " International Fiscal Policy Transmission," Scandinavian Journal of Economics, Blackwell Publishing, vol. 89(3), pages 305-34.
  18. Carlo Monticelli, 2000. "Structural Asymmetries and the Optimal Monetary Policy Instrument of the European Central Bank," Open Economies Review, Springer, vol. 11(1), pages 49-71, January. [Downloadable!] (restricted)
  19. Guzzo, Vincenzo & Velasco, Andres, 1999. "The case for a populist Central Banker," European Economic Review, Elsevier, vol. 43(7), pages 1317-1344, June. [Downloadable!] (restricted)
  20. Bernanke, Ben S. & Mihov, Ilian, 1997. "What does the Bundesbank target?," European Economic Review, Elsevier, vol. 41(6), pages 1025-1053, June. [Downloadable!] (restricted)
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  21. Lippi, Francesco, 1999. "Strategic Monetary Policy with Non-Atomistic Wage Setters: A Case for Non-Neutrality," CEPR Discussion Papers 2218, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Nicola Acocella & Giovanni Bartolomeo, 2004. "Is a Conservative Central Banker a (Perfect) Substitute for Wage Coordination?," Economic Change and Restructuring, Springer, vol. 31(2), pages 281-294, June. [Downloadable!] (restricted)
    Other versions:
  2. Nicola Acocella & Giovanni Di Bartolomeo, 2002. "Non-neutrality of monetary policy in policy games," Macroeconomics 0207002, EconWPA. [Downloadable!]
    Other versions:
  3. Nicola Acocella & Giovanni Di Bartolomeo, 2001. "Partisanship and fiscal policy co-ordination in a monetary union," Macroeconomics 0106003, EconWPA. [Downloadable!]
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  4. Moïse Sidiropoulos & Eleftherios Spyromitros, 2006. "Fiscal Policy in a Monetary Union Under Alternative Labour-Market Structures," Working Papers of BETA 2006-25, Bureau d'Economie Théorique et Appliquée, ULP, Strasbourg. [Downloadable!]
  5. Tomasz Michalak & Jacob Engwerda & Joseph Plasmans, 2009. "Strategic Interactions between Fiscal and Monetary Authorities in a Multi-Country New-Keynesian Model of a Monetary Union," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  6. Blandine ZIMMER, 2005. "Coordination des négociations salariales en UEM : un rôle majeur pour la BCE," Working Papers of BETA 2005-09, Bureau d'Economie Théorique et Appliquée, ULP, Strasbourg. [Downloadable!]
  7. Bas van Aarle & Jacob Engwerda & Joseph Plasmans, 2001. "Monetary and Fiscal Policy Interaction in the EMU: A Dynamic Game Approach," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
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