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Strategic Monetary Policy with Non-Atomistic Wage-Setters

Author

Listed:
  • Francesco Lippi

    (Bank of Italy, Research Department and CEPR)

Abstract

This paper proposes a monetary policy game based on a microfounded general equilibrium model. The approach allows some key features of the policy game (such as the policy maker's gap between desired and "natural" output) to be related to basic technological and preference parameters. Moreover, it shows how results are affected by the presence of nonatomistic private agents. A main finding which is emphasized here is that, with nonatomistic labor unions, the policy maker's aversion to inflation may have a permanent effect on employment even if all agents have rational expectations and complete information. The traditional result, whereby equilibrium employment is unrelated to the policy maker's aversion to inflation, is obtained as a special case when private agents are atomistic. The model is used to reexamine the welfare effects of monetary policy delegation to a "conservative" central bank.

Suggested Citation

  • Francesco Lippi, 2000. "Strategic Monetary Policy with Non-Atomistic Wage-Setters," Temi di discussione (Economic working papers) 374, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_374_00
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    File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2000/2000-0374/tema_374it.pdf
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    More about this item

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining

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