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Monetary Institutions, Monopolistic Competition, Unionized Labor Markets and Economic Performance *
Author(s) -
Coricelli Fabrizio,
Cukierman Alex,
Dalmazzo Alberto
Publication year - 2006
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/j.1467-9442.2006.00441.x
Subject(s) - economics , monopolistic competition , unemployment , inflation (cosmology) , wage , welfare , monetary policy , competition (biology) , wage bargaining , product market , monetary economics , labour economics , microeconomics , macroeconomics , monopoly , market economy , ecology , physics , incentive , biology , theoretical physics
Recent literature on the interactions between labor unions and monetary institutions features either a supply or a demand channel of monetary policy, but not both. This leads to two opposing views about the effects of central bank conservativeness. We evaluate the relative merits of those conflicting views by developing a unified framework. We find that: (i) the effect of conservativeness on employment depends on unions’ relative aversion to unemployment versus inflation, and (ii) for plausible values of this relative aversion (and more than one union), social welfare is maximized under a highly conservative central bank. We also evaluate the effects of centralization of wage bargaining and product market competition on unemployment and inflation.