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Labor market regimes and the effects of monetary policy

  • Acocella, Nicola

    (University of Rome, "La Sapienza")

  • Di Bartolomeo, Giovanni

    (University of Rome, "La Sapienza")

  • Hibbs Jr., Douglas A.

    ()

    (CEFOS, Göteborg University)

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.

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File URL: http://hdl.handle.net/2077/2755
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Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 145.

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Length: 30 pages
Date of creation: 11 Aug 2004
Date of revision: 22 Apr 2005
Publication status: Published in Journal of Macreconomics, 2008, pages 134-156.
Handle: RePEc:hhs:gunwpe:0145
Contact details of provider: Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/

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