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Centralized Wage Setting and Monetary Policy in a Reputational Equilibrium

  • Tabellini, Guido

This paper analyzes a repeated game between the central bank and a centralized trade union. The central bank would be better off if it could commit to a noninflationary strategy. When this commitment is not enforceable, a noninflationary equilibrium can still be sustained by a reputational mechanism if the central bank has superior information about its own objective function. The qualitative properties of this reputational equilibrium are shown to differ from the cases considered in the existing literature where the central bank was modeled as playing a game against competitive labor markets. Copyright 1988 by Ohio State University Press.

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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 20 (1988)
Issue (Month): 1 (February)
Pages: 102-18

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Handle: RePEc:mcb:jmoncb:v:20:y:1988:i:1:p:102-18
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  1. Kenneth S. Rogoff, 1983. "The optimal degree of commitment to an intermediate monetary target: inflation gains versus stabilization costs," International Finance Discussion Papers 230, Board of Governors of the Federal Reserve System (U.S.).
  2. David Kreps & Robert Wilson, 1999. "Reputation and Imperfect Information," Levine's Working Paper Archive 238, David K. Levine.
  3. David Backus & John Driffill, 1984. "Inflation and Reputation," Working Papers 560, Queen's University, Department of Economics.
  4. Horn, Henrik & Persson, Torsten, 1988. "Exchange rate policy, wage formation and credibility," European Economic Review, Elsevier, vol. 32(8), pages 1621-1636, October.
  5. Robert J. Barro, 1986. "Reputation in a Model of Monetary Policy with Incomplete Information," NBER Working Papers 1794, National Bureau of Economic Research, Inc.
  6. Fudenberg, Drew & Tirole, Jean, 1983. "Sequential Bargaining with Incomplete Information," Review of Economic Studies, Wiley Blackwell, vol. 50(2), pages 221-47, April.
  7. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
  8. Oswald, Andrew J, 1982. "The Microeconomic Theory of the Trade Union," Economic Journal, Royal Economic Society, vol. 92(367), pages 576-95, September.
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