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Strategic Monetary Policy with Non Atomistic Wage Setters

Author

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  • Francesco Lippi

    (Banca d'Italia)

Abstract

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.

Suggested Citation

  • Francesco Lippi, 2000. "Strategic Monetary Policy with Non Atomistic Wage Setters," Econometric Society World Congress 2000 Contributed Papers 1354, Econometric Society.
    • Handle: RePEc:ecm:wc2000:1354
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    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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