The welfare effect of foreign monetary conservatism with non-atomistic wage setters
This paper extends the closed economy analysis of strategic interaction between labor unions and the monetary authority in Lippi (REStud 2003) to a two-country open economy framework. It sheds light on the real effect of foreign central bank conservatism, whichï¿½through a strategic mechanism that operates via the terms of trade between the two independent monetary policy makersï¿½entails wage moderation. The impact of domestic central bank conservatism hinges instead on the combination of three strategic effects.
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