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PRODUCTIVITY SHOCKS AND OPTIMAL MONETARY POLICY IN A UNIONIZED LABOR MARKET ECONOMY
Author(s) -
MATTESINI FABRIZIO,
ROSSI LORENZA
Publication year - 2008
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2008.01077.x
Subject(s) - economics , monetary policy , new keynesian economics , interest rate , nominal interest rate , inflation (cosmology) , productivity , wage , shock (circulatory) , unemployment , taylor rule , general equilibrium theory , macroeconomics , monetary economics , keynesian economics , real interest rate , labour economics , central bank , medicine , physics , theoretical physics
A New Keynesian model characterized by labor indivisibilities, unemployment and a unionized labor market is presented. The bargaining process between unions and firms introduces real wage rigidity and creates an endogenous trade‐off between inflation and output stabilization. Under an optimal discretionary monetary policy a negative productivity shock requires an increase in the nominal interest rate. An operational instrument rule will satisfy the Taylor principle, but will also require that the nominal interest rate does not necessarily respond one to one to an increase in the efficient rate of interest.