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Union Power, Collective Bargaining, And Optimal Monetary Policy

  • ESTER FAIA
  • LORENZA ROSSI

We study Ramsey policies and optimal monetary policy rules in a model with sticky prices and unionized labour markets. Collective wage bargaining and unions monopoly power dampen wage fluctuations and amplify employment fluctuations relatively to a DNK model. The optimal monetary policy must trade-off between stabilizing inflation and reducing inefficient unemployment fluctuations induced by unions' monopoly power. In this context the monetary authority uses inflation as a tax on unions' rents. The optimal monetary policy rule targets unemployment alongside inflation.

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File URL: http://hdl.handle.net/10.1111/j.1465-7295.2012.00461.x
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Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 51 (2013)
Issue (Month): 1 (01)
Pages: 408-427

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Handle: RePEc:bla:ecinqu:v:51:y:2013:i:1:p:408-427
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