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Wage Setting Under Different Monetary Regimes

  • Steinar Holden

In an economy with large wage setters (like industry unions), the monetary regime affects the trade-off between consumer real wages and employment and profits faced by the wage setters. This paper shows that an exchange rate target, including participation in a monetary union, is likely to involve lower wages in the traded sector, and higher wages in the non-traded sector, than does a price target. An exchange rate target also involves higher prices on non-traded goods relative to traded goods. Overall welfare is likely to be higher under a price target.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2002/wp-cesifo-2002-01/632.PDF
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 632.

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Date of creation: 2002
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Handle: RePEc:ces:ceswps:_632
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  1. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February.
  2. Cubitt, Robin P, 1995. " Corporatism, Monetary Policy and Macroeconomic Performance: A Simple Game Theoretic Analysis," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(2), pages 245-59, June.
  3. Horn, Henrik & Persson, Torsten, 1988. "Exchange rate policy, wage formation and credibility," European Economic Review, Elsevier, vol. 32(8), pages 1621-1636, October.
  4. Sorensen, Jan Rose, 1992. " Uncertainty and Monetary Policy in a Wage Bargaining Model," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(3), pages 443-55.
  5. Rodseth, Asbjorn, 1996. " Exchange Rate versus Price Level Targets and Output Stability," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(4), pages 559-77, December.
  6. Andrew G. Haldane & Nicoletta Batini, 1998. "Forward-Looking Rules for Monetary Policy," NBER Working Papers 6543, National Bureau of Economic Research, Inc.
  7. Bo Rasmussen, 1996. "Imperfectly competitive factor markets and price normalization," Journal of Economics, Springer, vol. 63(2), pages 125-138, June.
  8. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, March.
  9. Steinar Holden, 2001. "Monetary Regimes and the Co-Ordination of Wage Setting," CESifo Working Paper Series 429, CESifo Group Munich.
  10. Hafiz A. Akhand, 1992. "Policy Credibility and Inflation in a Wage-Setting Game," Canadian Journal of Economics, Canadian Economics Association, vol. 25(2), pages 407-19, May.
  11. repec:dgr:kubcen:1998116 is not listed on IDEAS
  12. Berger, Helge & Jensen, Henrik & Schjelderup, Guttorm, 2001. "To peg or not to peg?: A simple model of exchange rate regime choice in small economies," Economics Letters, Elsevier, vol. 73(2), pages 161-167, November.
  13. Henrik Jensen, 1993. "International monetary policy cooperation in economies with centralized wage setting," Open Economies Review, Springer, vol. 4(3), pages 269-285, September.
  14. repec:dgr:kubcen:1999100 is not listed on IDEAS
  15. Dixon, Huw, 1987. "A Simple Model of Imperfect Competition with Walrasian Features," Oxford Economic Papers, Oxford University Press, vol. 39(1), pages 134-60, March.
  16. Rasmussen, Bo Sandemann, 1992. " Union Cooperation and Nontraded Goods in General Equilibrium," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(4), pages 561-79.
  17. Cukierman, Alex & Lippi, Francesco, 1999. "Central bank independence, centralization of wage bargaining, inflation and unemployment:: Theory and some evidence," European Economic Review, Elsevier, vol. 43(7), pages 1395-1434, June.
  18. Holden, Steinar, 1991. "Exchange rate policy and wage formation in an economy with many trade unions," European Economic Review, Elsevier, vol. 35(8), pages 1543-1557, December.
  19. �istein R�island & Ragnar Torvik, 2004. "Exchange rate versus inflation targeting: a theory of output fluctuations in traded and non-traded sectors," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 13(3), pages 265-285.
  20. Ben S. Bernanke & Frederic S. Mishkin, 1997. "Inflation Targeting: A New Framework for Monetary Policy?," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 97-116, Spring.
  21. Wibaut, Quentin, 1997. "Money as a coordination device," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1997023, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  22. Vartiainen, Juhana, 1999. "Relative Wages in Monetary Union and Floating," Working Paper Series 155, Trade Union Institute for Economic Research.
  23. Jensen, Henrik, 1997. " Monetary Policy Cooperation May Not Be Counterproductive," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(1), pages 73-80, March.
  24. Holden, S. & Raaum, O., 1989. "Wage Moderation And Unions Structure," Memorandum 06/1989, Oslo University, Department of Economics.
  25. Cukierman, A. & Lippi, F., 1998. "Central Bank Independence, Centralization of Wage Bargaining, Inflation and Unemployment: Theory and Evidence," Papers 332, Banca Italia - Servizio di Studi.
  26. Skott, Peter, 1997. "Stagflationary Consequences of Prudent Monetary Policy in a Unionized Economy," Oxford Economic Papers, Oxford University Press, vol. 49(4), pages 609-22, October.
  27. Soskice, David & Iversen, Torben, 1998. "Multiple Wage-Bargaining Systems in the Single European Currency Area," Oxford Review of Economic Policy, Oxford University Press, vol. 14(3), pages 110-24, Autumn.
  28. Cubitt, Robin P, 1992. "Monetary Policy Games and Private Sector Precommitment," Oxford Economic Papers, Oxford University Press, vol. 44(3), pages 513-30, July.
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