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Labor market regimes and the effects of monetary policy

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  • Acocella, Nicola

    (University of Rome, "La Sapienza")

  • Di Bartolomeo, Giovanni

    (University of Rome, "La Sapienza")

  • Hibbs Jr., Douglas A.

    (CEFOS, Göteborg University)

Abstract

In this paper we use a standard multi-union, monopolistic competition model to evaluate analytically and numerically the effects of monetary policy on inflation and unemployment under different institutional arrangements in the labor market that are defined by the rigidity of nominal wages. We show that the effects of monetary policy on the real economy depend critically on the wage formation regime, and on the ways in which the restrictiveness of policy interacts with product price competition, wage setting centralization and the utility weight unions place on real wage premiums as compared to unemployment. Our interpretation of the results emphasizes how the posture of monetary policy toward inflation influences the strategic calculations driving unions’ wage setting behavior in different institutional environments.

Suggested Citation

  • Acocella, Nicola & Di Bartolomeo, Giovanni & Hibbs Jr., Douglas A., 2004. "Labor market regimes and the effects of monetary policy," Working Papers in Economics 145, University of Gothenburg, Department of Economics, revised 12 May 2006.
  • Handle: RePEc:hhs:gunwpe:0145
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    File URL: http://hdl.handle.net/2077/2755
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    Cited by:

    1. Nicola Acocella & Laura Bisio & Giovanni Di Bartolomeo & Alessandra Pelloni, "undated". "Labor market imperfections, real wage rigidities and financial shocks," Working Papers 80/11, Sapienza University of Rome, Metodi e Modelli per l'Economia, il Territorio e la Finanza MEMOTEF.
    2. Amélie BARBIER-GAUCHARD & Francesco De PALMA & Thierry BETTI, 2020. "Monetary policy with weakened unions," Working Papers of BETA 2020-26, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    3. Philip Du Caju & Erwan Gautier & Daphne Momferatu & Melanie Ward-Warmedinger, 2009. "Institutional Features of Wage Bargaining in 23 European Countries, the US and Japan," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 12(2), pages 57-108, Winter.
    4. Nicola Viegi & Vincent Dadam, 2015. "Labour Market and Monetary Policy in South Africa," Working Papers 551, Economic Research Southern Africa.
    5. Giovanni Di Bartolomeo, 2014. "Optimal Degree of Union Centralization," Studies in Microeconomics, , vol. 2(2), pages 201-211, December.
    6. Sanvi Avouyi-Dovi & Denis Fougère & Erwan Gautier, 2013. "Wage Rigidity, Collective Bargaining, and the Minimum Wage: Evidence from French Agreement Data," The Review of Economics and Statistics, MIT Press, vol. 95(4), pages 1337-1351, October.
    7. Sánchez, Marcelo, 2013. "Monetary accommodation, imperfect central bank transparency and optimal delegation," Economics Letters, Elsevier, vol. 120(3), pages 392-396.
    8. Sánchez, Marcelo, 2011. "Monetary strictness and labour market outcomes under incomplete transparency," Research in Economics, Elsevier, vol. 65(2), pages 95-99, June.
    9. Nicola Acocella & Giovanni Di Bartolomeo, 2005. "Non-neutrality of economic policy: An application of the Tinbergen-Theil's approach to a strategic context," Working Papers in Public Economics 82, University of Rome La Sapienza, Department of Economics and Law.
    10. Sánchez, Marcelo, 2008. "Monetary stabilisation in a currency union of small open economies," Working Paper Series 927, European Central Bank.
    11. Nicola Acocella & Giovanni Bartolomeo & Wilfried Pauwels, 2010. "Is there any scope for corporatism in macroeconomic policies?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 37(4), pages 403-424, November.
    12. Giovanni Di Bartolomeo & Patrizio Tirelli & Nicola Acocella, 2013. "Trend inflation as a workers’ discipline device," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 40(2), pages 215-235, May.
    13. Giovanni Di Bartolomeo & Nicola Acocella & Wilfried Pauwels, 2004. "Is There any Scope for Corporatism in Stabilization Policies?," Working Papers 2009.154, Fondazione Eni Enrico Mattei.

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    More about this item

    Keywords

    Policy games; monetary policy neutrality; trade unions; monopolistic competition; labor markets;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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