Union power, collective bargaining, and optimal monetary policy

Faia, E. and Rossi, L. (2013) Union power, collective bargaining, and optimal monetary policy. Economic Inquiry, 51 (1). pp. 408-427. ISSN 0095-2583

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Abstract

We study Ramsey policies and optimal monetary policy rules in a dynamic New Keynesian model with unionized labor markets. Collective wage bargaining and unions' monopoly power amplify inefficient employment fluctuations. The optimal monetary policy must trade off between stabilizing inflation and reducing inefficient unemployment fluctuations induced by unions' monopoly power. In this context the monetary authority uses inflation as a tax on union rents and as a mean for indirect redistribution. Results are robust to the introduction of imperfect insurance on income shocks. The optimal monetary policy rule targets unemployment alongside inflation.

Item Type:
Journal Article
Journal or Publication Title:
Economic Inquiry
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/2000/2002
Subjects:
ID Code:
160497
Deposited By:
Deposited On:
08 Oct 2021 12:50
Refereed?:
Yes
Published?:
Published
Last Modified:
09 Oct 2021 05:56