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

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  • Di Bartolomeo Giovanni
  • Acocella Nicola
  • Tirelli Patrizio

Abstract

In New Keynesian models nominal rigidities determine socially inefficient 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 inflation 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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Bibliographic Info

Paper provided by Department of Communication, University of Teramo in its series wp.comunite with number 0043.

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Date of creation: Jun 2008
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Handle: RePEc:ter:wpaper:0043

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Web page: http://wp.comunite.it/

Related research

Keywords: Inflation bias; discretionary monetary policy; non-zero inflation targeting; unemployment; strategic wage setter; labor unions;

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Cited by:
  1. Di Bartolomeo Giovanni & Tirelli Patrizio & Acocella Nicola, 2010. "Trend inflation, endogenous mark-ups and the non-vertical Phillips curve," wp.comunite, Department of Communication, University of Teramo 0065, Department of Communication, University of Teramo.

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