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Central Banks, Trade Unions and Reputation – Is there Room for an Expansionist Manoeuvre in the European Union?

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  • Pusch, Toralf
  • Heise, Arne

Abstract

It is now a few years since the introduction of the common currency, and Europe is still experiencing high unemployment. The conventional logic attributes this problem to strong trade unions and other flaws in the labour market. This article takes a different approach. Using a game theoretic model we look at the changes that occur if trade unions and the central bank have different options to choose from in a climate of uncertainty. In a singlestage game the most probable outcome is a high unemployment rate as high as the NAIRU. However, there is also a slight chance that a central bank might take the risk associated with employment expansion (if trade unions cooperate the risk pays off). Moreover, results change dramatically if the game is repeated. This allows for effects on the trade union’s reputation. It can be shown that this, in turn, improves the likelihood of employment expansion.

Suggested Citation

  • Pusch, Toralf & Heise, Arne, 2008. "Central Banks, Trade Unions and Reputation – Is there Room for an Expansionist Manoeuvre in the European Union?," MPRA Paper 19719, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:19719
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    References listed on IDEAS

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    Cited by:

    1. Glassner, Vera & Pusch, Toralf, 2010. "The Emergence of Wage Coordination in the Central Western European Metal Sector and its Relationship to European Economic Policy," IWH Discussion Papers 13/2010, Halle Institute for Economic Research (IWH).

    More about this item

    Keywords

    Central Bank; Reputation; Trade Unions;

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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