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

  • Di Bartolomeo Giovanni
  • Acocella Nicola
  • Tirelli Patrizio

In New Keynesian models nominal rigidities determine socially inefficient 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 inflation 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 Department of Communication, University of Teramo in its series wp.comunite with number 0043.

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Date of creation: Jun 2008
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Handle: RePEc:ter:wpaper:0043
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