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WELFARE AND MONETARY PRECOMMITMENT IN AN ECONOMY WITH MENU COSTS AND UNIONIZED WAGE SETTING
Author(s) -
Cubitt Robin P.
Publication year - 1993
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/j.1467-8586.1993.tb00552.x
Subject(s) - precommitment , economics , inflation (cosmology) , monetary policy , welfare , wage , private sector , fiscal policy , government (linguistics) , monetary economics , macroeconomics , microeconomics , labour economics , market economy , linguistics , philosophy , physics , theoretical physics , economic growth
The paper shows that monetary precommitment can be advantageous to the government in a macroeconomic policy game where (i) the government's objectives are explicitly derived from those of the citizens, (ii) inflation has a real cost and (iii) the suboptimality of the output level arises from the structure of the private sector rather than from fiscal policy. It suggests that, to this extent, welfare interpretations of game theoretic monetary policy models are coherent.