The interaction between the central bank and a monopoly union revisited: does greater uncertainty about monetary policy reduce average inflation?
AbstractPrevious papers modeling the interaction between the central bank and a monopoly union demonstrated that greater monetary policy uncertainty induces the union to reduce nominal wages. This paper shows that this result does not hold in general, since it depends on peculiar specifications of the union’s objective function. In particular, I show that greater monetary policy uncertainty raises the nominal wage whenever union members tend to be more sensitive to the risk of getting low real wages than to the risk of remaining unemployed. This conclusion appears consistent with the evidence showing that greater monetary authority’s transparency reduces average inflation.
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Bibliographic InfoPaper provided by Department of Economics, University of Trento, Italia in its series Department of Economics Working Papers with number 0716.
Date of creation: 2007
Date of revision:
Monetary game; transparency in policymaking.;
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-08-08 (All new papers)
- NEP-CBA-2007-08-08 (Central Banking)
- NEP-MAC-2007-08-08 (Macroeconomics)
- NEP-MON-2007-08-08 (Monetary Economics)
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