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Central banks, trade unions and reputation - is there room for an expansionist manoeuvre in the European Union?

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  • Pusch, Toralf
  • Heise, Arne

Abstract

It is now a few years since the introduction of the common currency, and Europe is still experiencing high unemployment. The conventional logic attributes this problem to strong trade unions and other flaws in the labour market. This article takes a different approach. Using a game theoretic model we look at the changes that occur if trade unions and the central bank have different options to choose from in a climate of uncertainty. In a singlestage game the most probable outcome is a high unemployment rate as high as the NAIRU. However, there is also a slight chance that a central bank might take the risk associated with employment expansion (if trade unions cooperate the risk pays off). Moreover, results change dramatically if the game is repeated. This allows for effects on the trade union's reputation. It can be shown that this, in turn, improves the likelihood of employment expansion. --

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Paper provided by University of Hamburg, Department of Socioeconomics in its series Working Papers on Economic Governance with number 31.

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Date of creation: 2008
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Handle: RePEc:zbw:uhhafs:31

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Web page: http://www.wiso.uni-hamburg.de/fachbereiche/sozialoekonomie/startseite/
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Keywords: Monetary Policy; labour unions; reputation building; employment; EMU;

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  1. Neil Rankin, 1998. "Is Delegating Half of Demand Management Sensible?," International Review of Applied Economics, Taylor & Francis Journals, vol. 12(3), pages 415-422.
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  7. Heise, Arne, 2004. "Limitations to Keynesian demand management through monetary policy: whither Cartesian policy control," Working Papers on Economic Governance 14, University of Hamburg, Department of Socioeconomics.
  8. Heise, Arne, 2005. "Market constellations and macroeconomic policy-making: institutional impacts on economic performance," Working Papers on Economic Governance 18, University of Hamburg, Department of Socioeconomics.
  9. David Kreps & Robert Wilson, 1999. "Reputation and Imperfect Information," Levine's Working Paper Archive 238, David K. Levine.
  10. Arne Heise, 2008. "European economic governance: what is it, where are we and where do we go?," International Journal of Public Policy, Inderscience Enterprises Ltd, vol. 3(1/2), pages 1-19.
  11. David M Kreps & Robert Wilson, 2003. "Sequential Equilibria," Levine's Working Paper Archive 618897000000000813, David K. Levine.
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  13. Robert J. Barro & David B. Gordon, 1981. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
  14. Jerger, Jurgen, 2002. "How strong is the case for a populist central banker? A note," European Economic Review, Elsevier, vol. 46(3), pages 623-632, March.
  15. David Soskice & Torben Iversen, 2001. "Multiple Wage Bargaining Systems in the Single European Currency Area," Empirica, Springer, vol. 28(4), pages 435-456, December.
  16. Guzzo, Vincenzo & Velasco, Andres, 1999. "The case for a populist Central Banker," European Economic Review, Elsevier, vol. 43(7), pages 1317-1344, June.
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  18. Soskice, David, 1990. "Wage Determination: The Changing Role of Institutions in Advanced Industrialized Countries," Oxford Review of Economic Policy, Oxford University Press, vol. 6(4), pages 36-61, Winter.
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