IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Money wage rigidity, monopoly power and hysteresis

  • Alfonso Palacio-Vera

    (Universidad Complutense de Madrid. Departamento de Política Económica)

Registered author(s):

    The literature that addresses the effects on the level of aggregate demand of changes in the degree of monopoly typically assumes away the existence of an “inflation barrier” and an inflationtargeting central bank. The presence of these two institutional factors entails that any aggregate demand change brought about by changes in the functional distribution of income will tend to be offset by changes in real interest rates. We postulate a simple macroeconomic model for a closed economy with a government sector and hypothesize that a change in the average mark up affects the inflation rate, the “inflation-barrier” and aggregate demand. The model allows for the analysis of the effects on the employment rate of demand and supply shocks when the economy exhibits asymmetric inflation dynamics (AID) and hysteresis effects. Among other results we find that, if the economy exhibits AID and hysteresis, the effect on the employment rate of a change in the mark up is likely to be either ineffectual or counterproductive even if the associated demand shock is expansionary. We also show that an inadequate functional distribution of income may lead to the occurrence of an aggregate demand deficiency problem.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://eprints.ucm.es/8181/1/0802.pdf
    Download Restriction: no

    Paper provided by Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales in its series Documentos de trabajo de la Facultad de Ciencias Económicas y Empresariales with number 08-02.

    as
    in new window

    Length: 38 pages
    Date of creation: 2008
    Date of revision:
    Handle: RePEc:ucm:doctra:08-02
    Contact details of provider: Phone: 913942604
    Fax: 913942531
    Web page: http://economicasyempresariales.ucm.es/
    Email:


    More information through EDIRC

    Order Information: Postal: Facultad de Ciencias Económicas y Empresariales. Campus de Somosaguas, 28223 - POZUELO DE ALARCÓN (MADRID)
    Web: https://economicasyempresariales.ucm.es/working-papers-ccee Email:


    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Annabelle Mourougane & Hideyuki Ibaragi, 2004. "Is There a Change in the Trade-Off Between Output and Inflation at Low or Stable Inflation Rates?: Some Evidence in the Case of Japan," OECD Economics Department Working Papers 379, OECD Publishing.
    2. Hargreaves Heap, S P, 1980. "Choosing the Wrong 'Natural' Rate: Accelerating Inflation or Decelerating Employment and Growth?," Economic Journal, Royal Economic Society, vol. 90(359), pages 611-20, September.
    3. Axel A. Weber & Wolfgang Lemke & Andreas Worms, 2008. "How useful is the concept of the natural real rate of interest for monetary policy?," Cambridge Journal of Economics, Oxford University Press, vol. 32(1), pages 49-63, January.
    4. Steinar Holden & Fredrik Wulfsberg, 2004. "Downward Nominal Wage Rigidity in Europe (new title: The costs of price stability - downward nominal wage rigidity in Europe)," CESifo Working Paper Series 1177, CESifo Group Munich.
    5. George A. Akerlof, 2007. "The Missing Motivation in Macroeconomics," American Economic Review, American Economic Association, vol. 97(1), pages 5-36, March.
    6. Ernst Fehr & Lorenz Götte, 2000. "Robustness and Real Consequences of Nominal Wage Rigidity," CESifo Working Paper Series 335, CESifo Group Munich.
    7. Bruce Greenwald & Joseph E. Stiglitz, 1993. "New and Old Keynesians," Journal of Economic Perspectives, American Economic Association, vol. 7(1), pages 23-44, Winter.
    8. Harcourt, G C, 1969. "Some Cambridge Controversies in the Theory of Capital," Journal of Economic Literature, American Economic Association, vol. 7(2), pages 369-405, June.
    9. Rose McElhattan, 1985. "Inflation, supply shocks and the stable-inflation rate of capacity utilization," Economic Review, Federal Reserve Bank of San Francisco, issue Win, pages 45-63.
    10. David Reifschneider & John C. Williams, 2000. "Three lessons for monetary policy in a low-inflation era," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, pages 936-978.
    11. Philip Arestis & Malcolm Sawyer, 2006. "The nature and role of monetary policy when money is endogenous," Cambridge Journal of Economics, Oxford University Press, vol. 30(6), pages 847-860, November.
    12. Alan S. Blinder, 2000. "Summary panel: monetary policy at the zero lower bound: balancing the risks," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, pages 1093-1099.
    13. Jeffrey C. Fuhrer & Brian F. Madigan, 1997. "Monetary Policy When Interest Rates Are Bounded At Zero," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 573-585, November.
    14. Lavoie, M, 1995. "Horizontalism, Structuralism, Liquidity Preference and the Principle of Increasing Risk," Working Papers 9513e, University of Ottawa, Department of Economics.
    15. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers.
    16. David Card & Dean Hyslop, 1996. "Does Inflation "Grease the Wheels of the Labor Market"?," NBER Working Papers 5538, National Bureau of Economic Research, Inc.
    17. Assar Lindbeck, 1993. "Unemployment and Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121751, June.
    18. Palley, Thomas I, 1994. " Escalators and Elevators: A Phillips Curve for Keynesians," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(1), pages 111-16.
    19. Paul Davidson, 1991. "Is Probability Theory Relevant for Uncertainty? A Post Keynesian Perspective," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 129-143, Winter.
    20. Giavazzi, Francesco & Wyplosz, Charles, 1985. "The Zero Root Problem: A Note on the Dynamic Determination of the Stationary Equilibrium in Linear Models," Review of Economic Studies, Wiley Blackwell, vol. 52(2), pages 353-57, April.
    21. Lebow David E & Saks Raven E & Wilson Beth Anne, 2003. "Downward Nominal Wage Rigidity: Evidence from the Employment Cost Index," The B.E. Journal of Macroeconomics, De Gruyter, vol. 3(1), pages 1-30, October.
    22. Carlin, Wendy & Soskice, David, 2004. "The 3-Equation New Keynesian Model: A Graphical Exposition," CEPR Discussion Papers 4588, C.E.P.R. Discussion Papers.
    23. Rowthorn, R E, 1977. "Conflict, Inflation and Money," Cambridge Journal of Economics, Oxford University Press, vol. 1(3), pages 215-39, September.
    24. Philip Arestis & Malcolm Sawyer, 2008. "A critical reconsideration of the foundations of monetary policy in the new consensus macroeconomics framework," Cambridge Journal of Economics, Oxford University Press, vol. 32(5), pages 761-779, September.
    25. Engelbert Stockhammer & Özlem Onaran & Stefan Ederer, 2007. "Functional income distribution and aggregate demand in the Euro-area," Department of Economics Working Papers wuwp102, Vienna University of Economics and Business, Department of Economics.
    26. Reifschneider, David & Willams, John C, 2000. "Three Lessons for Monetary Policy in a Low-Inflation Era," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(4), pages 936-66, November.
    27. Joanne Archibald & Leni Hunter, 2001. "What is the neutral real interest rate, and how can we use it?," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 64, September.
    28. Giuseppe Fontana & Alfonso Palacio-Vera, 2005. "Are Long-run Price Stability and Short-run Output Stabilization All that Monetary Policy Can Aim For?," Economics Working Paper Archive wp_430, Levy Economics Institute.
    29. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
    30. Steinar Holden, 2002. "The Costs of Price Stability - Downward Nominal Wage Rigidity in Europe," NBER Working Papers 8865, National Bureau of Economic Research, Inc.
    31. Orphanides, Athanasios & Wieland, Volker, 2000. "Inflation zone targeting," European Economic Review, Elsevier, vol. 44(7), pages 1351-1387, June.
    32. Bhaduri, Amit & Marglin, Stephen, 1990. "Unemployment and the Real Wage: The Economic Basis for Contesting Political Ideologies," Cambridge Journal of Economics, Oxford University Press, vol. 14(4), pages 375-93, December.
    33. Alan S. Blinder, 2006. "Monetary Policy Today: Sixteen Questions and about Twelve Answers," Working Papers 73, Princeton University, Department of Economics, Center for Economic Policy Studies..
    34. Kazuo Ueda, 2000. "Summary panel: Japan's experience with zero interest rates," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, pages 1107-1109.
    35. Steinar Holden & Fredrik Wulfsberg, 2007. "Downward Nominal Wage Rigidity in the OECD," CESifo Working Paper Series 2009, CESifo Group Munich.
    36. Pollin, Robert, 1985. "Stability and Instability in the Debt-Income Relationship," American Economic Review, American Economic Association, vol. 75(2), pages 344-50, May.
    37. Setterfield, Mark, 1998. "Adjustment Asymmetries and Hysteresis in Simple Dynamic Models," The Manchester School of Economic & Social Studies, University of Manchester, vol. 66(3), pages 283-301, June.
    38. C. Alan Garner, 1994. "Capacity utilization and U.S. inflation," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 5-21.
    39. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 466-502, June.
    40. Ueda, Kazuo, 2000. "Japan's Experience with Zero Interest Rates: Summary Panel," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(4), pages 1107-09, November.
    41. Blinder, Alan S, 2000. "Monetary Policy at the Zero Lower Bound: Balancing the Risks: Summary Panel," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(4), pages 1093-99, November.
    42. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
    43. Stockhammer, Engelbert & Onaran, Ozlem, 2004. "Accumulation, distribution and employment: a structural VAR approach to a Kaleckian macro model," Structural Change and Economic Dynamics, Elsevier, vol. 15(4), pages 421-447, December.
    44. repec:cup:cbooks:9780521365963 is not listed on IDEAS
    45. Laurence Ball, 1999. "Aggregate demand and Long-Run Unemployment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(2), pages 189-252.
    46. Ben S. Bernanke & Vincent R. Reinhart, 2004. "Conducting Monetary Policy at Very Low Short-Term Interest Rates," American Economic Review, American Economic Association, vol. 94(2), pages 85-90, May.
    47. Carol Corrado & Joe Mattey, 1997. "Capacity Utilization," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 151-167, Winter.
    48. Laurence H. Meyer, 2001. "Does money matter?," Review, Federal Reserve Bank of St. Louis, issue May, pages 1-16.
    49. Camille Logeay & Silke Tober, 2006. "Hysteresis And The Nairu In The Euro Area," Scottish Journal of Political Economy, Scottish Economic Society, vol. 53(4), pages 409-429, 09.
    50. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
    51. Eckhard Hein & Lena Vogel, 2008. "Distribution and growth reconsidered: empirical results for six OECD countries," Cambridge Journal of Economics, Oxford University Press, vol. 32(3), pages 479-511, May.
    52. Tony Yates, 2004. "Monetary Policy and the Zero Bound to Interest Rates: A Review," Journal of Economic Surveys, Wiley Blackwell, vol. 18, pages 427-481, 07.
    53. A. Asimakopulos, 1975. "A Kaleckian Theory of Income Distribution," Canadian Journal of Economics, Canadian Economics Association, vol. 8(3), pages 313-33, August.
    54. Sawyer, Malcolm C, 1982. "Collective Bargaining, Oligopoly and Macro-Economics," Oxford Economic Papers, Oxford University Press, vol. 34(3), pages 428-48, November.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:ucm:doctra:08-02. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Águeda González Abad)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.