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Union Wage Setting and Exchange Rate Policy

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  • Philip Lawler

Abstract

The performance of an optimally managed float is compared with that of a credibly fixed exchange rate in a small open‐economy framework where wages are set by a monopoly union. Two key results emerge. First, a sufficient condition for the managed float to outperform a fixed rate is that the union be no less inflation‐averse than society. Second, introducing an inflation target into the central bank's loss function ensures the superiority of the managed float regardless of the weight attached to inflation by the union. Both results reflect the sensitivity of the union mark‐up to the policy regime.

Suggested Citation

  • Philip Lawler, 2000. "Union Wage Setting and Exchange Rate Policy," Economica, London School of Economics and Political Science, vol. 67(265), pages 91-100, February.
    • Handle: RePEc:bla:econom:v:67:y:2000:i:265:p:91-100
    DOI: 10.1111/1468-0335.00197
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    Cited by:

    1. Acocella, Nicola & Di Bartolomeo, Giovanni, 2004. "Non-neutrality of monetary policy in policy games," European Journal of Political Economy, Elsevier, vol. 20(3), pages 695-707, September.
    2. Nicola Acocella & Giovanni Bartolomeo, 2013. "The Cost Of Social Pacts," Bulletin of Economic Research, Wiley Blackwell, vol. 65(3), pages 238-255, July.
    3. Nicola Acocella & Giovanni Bartolomeo & Wilfried Pauwels, 2010. "Is there any scope for corporatism in macroeconomic policies?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 37(4), pages 403-424, November.
    4. Andini, Corrado, 2023. "Exchange-rate policy, institutions and wages: A macroeconomic quasi-experiment from Italy, 1997–2000," International Economics, Elsevier, vol. 175(C), pages 158-170.
    5. Giovanni Di Bartolomeo & Nicola Acocella & Wilfried Pauwels, 2004. "Is There any Scope for Corporatism in Stabilization Policies?," Working Papers 2009.154, Fondazione Eni Enrico Mattei.
    6. Acocella, Nicola & Di Bartolomeo, Giovanni & Tirelli, Patrizio, 2009. "The macroeconomics of social pacts," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 202-213, October.
    7. Andini, Corrado, 2014. "Fixed Exchange-Rate Policy and Real Wage Growth: Quasi-Experimental Evidence," IZA Discussion Papers 8701, Institute of Labor Economics (IZA).

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