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UNION POWER, COLLECTIVE BARGAINING, AND OPTIMAL MONETARY POLICY
Author(s) -
FAIA ESTER,
ROSSI LORENZA
Publication year - 2013
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.2012.00461.x
Subject(s) - economics , unemployment , monopoly , monetary policy , economic rent , new keynesian economics , redistribution (election) , bargaining power , inflation (cosmology) , wage , context (archaeology) , monetary economics , collective bargaining , stabilization policy , macroeconomics , labour economics , microeconomics , paleontology , physics , politics , theoretical physics , political science , law , biology
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. ( JEL E0, E4, E5, E6)