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Strategic Monetary Policy with Non Atomistic Wage Setters

  • Francesco Lippi

    (Banca d'Italia)

This paper presents a monetary policy game where firms' and wage setters' choices are derived explcitly from microfoundations. This approach allows us to relate some important features of the policy game to identifiable technological and preference parameters. Moreover, it shows that with large (uncoordinated) wage setters the policy maker's inflation aversion may have a permanent effect on employment even if private agents have rational expectations and complete information. The traditional result, whereby equilibrium employment is unrelated to the policy maker's inflation aversion is obtained as a special case when wage setting is fully decentralized (atomistic private sector). The model is used to reexamine the welfare effects of monetary policy delegation to a `conservative' central bank.

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Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1354.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:1354
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  1. Stefania Albanesi & V. V. Chari & Lawrence J. Christiano, 2003. "Expectation traps and monetary policy," Staff Report 319, Federal Reserve Bank of Minneapolis.
  2. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
  3. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  4. Sergio Rebelo & Piyabha Kongsamut & Danyang Xie, 2001. "Beyond Balanced Growth," IMF Working Papers 01/85, International Monetary Fund.
  5. Neiss, Katharine S, 1999. "Discretionary Inflation in a General Equilibrium Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 357-74, August.
  6. 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.
  7. Lippi, Francesco, 2001. "Strategic Monetary Policy with Non-Atomistic Wage-Setters: Some Evidence," CEPR Discussion Papers 2819, C.E.P.R. Discussion Papers.
  8. Svensson, Lars E O & Woodford, Michael, 2004. "Implementing Optimal Policy Through Inflation-Forecast Targeting," CEPR Discussion Papers 4229, C.E.P.R. Discussion Papers.
  9. Michael Woodford, 2001. "Inflation Stabilization and Welfare," NBER Working Papers 8071, National Bureau of Economic Research, Inc.
  10. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
  11. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper 0107, Federal Reserve Bank of Cleveland.
  12. David Soskice & Torben Iversen, 2000. "The Nonneutrality Of Monetary Policy With Large Price Or Wage Setters," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 265-284, February.
  13. Robert J. Barro & David B. Gordon, 1981. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
  14. Griffin, Peter, 1992. "The Impact of Affirmative Action on Labor Demand: A Test of Some Implications of the Le Chatelier Principle," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 251-60, May.
  15. Denny, Michael & Fuss, Melvyn A, 1977. "The Use of Approximation Analysis to Test for Separability and the Existence of Consistent Aggregates," American Economic Review, American Economic Association, vol. 67(3), pages 404-18, June.
  16. Robert King & Alexander L. Wolman, 1999. "What Should the Monetary Authority Do When Prices Are Sticky?," NBER Chapters, in: Monetary Policy Rules, pages 349-404 National Bureau of Economic Research, Inc.
  17. Ireland, Peter N., 1997. "Sustainable monetary policies," Journal of Economic Dynamics and Control, Elsevier, vol. 22(1), pages 87-108, November.
  18. 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.
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