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Trend inflation as a workers disciplining device in a general equilibrium model

  • Giovanni Di Bartolomeo
  • Patrizio Tirelli


  • Nicola Acocella

In New Keynesian models nominal rigidities determine socially ineffi - cient outcomes. Our paper reverses this view: properly designed monetary policies may take advantage of predetermined nominal wages to discipline monopolistic wage setters. This, in turn, requires accepting a non-zero in- flation rate. Discretionary monetary policy is effective when wage setters are non atomistic. Inflation targeting has real effects irrespective of the degree of labor market centralization.

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Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 142.

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Length: 25 pages
Date of creation: Jul 2008
Date of revision: Jul 2008
Handle: RePEc:mib:wpaper:142
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  17. 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.
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