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Macroeconomic interdependence under collective wage bargaining

Author

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  • Vincenzo Cuciniello

    () (Chair of International Finance, Ecole Polytechnique Federale de Lausanne (EPFL), Switzerland)

Abstract

This paper uses a two-country, sticky-price model with non-atomistic wage setters to study the role of collective wage bargaining in the propagation of monetary shocks. I find that the welfare transmissions of a monetary expansion are reinforced by different labor market structures. Non-atomistic domestic unions anticipate that their wage demands raise real labor income through a movement of the terms of trade. This leads to an additional channel of transmission of monetary policy that goes through aggregate supply. Yet, workers benefit more from a monetary expansion when the exchange rate pass-through is not limited and the elasticity of substitution across traded goods is sizable. It follows that wage mark-ups charged by unions endogenously vary with those structural parameters. In particular, labor and product market distortions are strategic substitute in affecting the perceived labor demand elasticity.

Suggested Citation

  • Vincenzo Cuciniello, 2009. "Macroeconomic interdependence under collective wage bargaining," Working Papers 200906, Center for Fiscal Policy, Swiss Federal Institute of Technology Lausanne.
  • Handle: RePEc:cif:wpaper:200906
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    Keywords

    non-atomistic agents; interdependence; exchange rate fluctuation; wage setting;

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining

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