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Union Power, Collective Bargaining, And Optimal Monetary Policy

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Listed author(s):
  • ESTER FAIA
  • LORENZA ROSSI

Abstract

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
DOI: j.1465-7295.2012.00461.x
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Find related papers by JEL classification:
  • E0 - Macroeconomics and Monetary Economics - - General
  • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
  • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
  • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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Cited by:

  1. Andrea Colciago & Lorenza Rossi, 2013. "Firm Entry, Endogenous Markups and the Dynamics of the Labor Share of Income," DNB Working Papers 367, Netherlands Central Bank, Research Department.
  2. Clemens, Marius, 2016. "Migration, Unemployment and the Business Cycle - A Euro Area Perspective," Annual Conference 2016 (Augsburg): Demographic Change 145578, Verein für Socialpolitik / German Economic Association.
  3. Carlsson, Mikael & Westermark, Andreas, 2012. "Labor-Market Frictions and Optimal Inflation," Working Paper Series 259, Sveriges Riksbank (Central Bank of Sweden).
  4. Brecht Boone & Freddy Heylen, 2015. "Cross-country differences in unemployment: fiscal policy,unions and household preferences in general equilibrium," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 15/899, Ghent University, Faculty of Economics and Business Administration.
  5. Janett Neugebauer & Dennis Wesselbaum, 2014. "Staggered Wages, Sticky Prices, and Labor Market Dynamics in Matching Models," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot GmbH, Berlin, vol. 60(3), pages 159-177.
  6. Anthony Diercks, 2016. "The Equity Premium, Long-Run Risk, and Optimal Monetary Policy," 2016 Meeting Papers 207, Society for Economic Dynamics.

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