Strategic monetary policy in a monetary union with non-atomistic wage setters

Thus the range of ∣∣_fh is — i-ɪ. and 0 in presence of an ultra-conservative (β_h → ∞Lβ_p →
∞) and populist CB (βH → ∞Vβ_p → ∞) respectively. In the case of a MU, the elasticity
of money supply to union-wide wages is given by

_   (1 ^— a)^β_u

^^{u 1} к + βu (1 — ■ '

whose range spanned by CBC is (—ββ, 1) . The impact of CBC on μu is

^dμu ___^{k(1 — q}Q    _< о

dβu~ [к + (1 — o)²β u ]²    .

A typical union first order condition. The typical union i maximizes (15) with
respect to ω⅛ subject to (4) and (29), taking as given profits, Di, and the nominal wages
set by other unions at Home and abroad. Note that individual union dividend flows are
Di _ Pfr^-(1 — ^a). In a symmetric equilibrium in which all Di are the same, profit per
union is

Di _ PhYh(1 — «) _ (1 — a)PC_i.

From the budget constraint (4), we obtain for all domestic firms

PCi _ WiLi + (1 — ∏ )/'C

so that aPCj_ι _ W_iL_i. The first order condition with respect to ω⅛ yields

Analysis of CBC and macroeconomic outcome. From equation (36) and (37), it
appears that the value of labor demand elasticity is mainly determined by the elasticity of

money supply to nominal wages. According to the degree of CBC, the range of 1 — μHH is

in the case of ultra-populist and ultra-conservative CB respectively.

Similarly 1 —μu is equal to 0 and ɪ-^ in presence of an ultra-populist and ultra-conservative

CB respectively. When 1 — μHH _ 0 and 1 — μu _ 0, i.e. in presence of an ultra-liberal
domestic CB, the elasticity of labor demand is σ in both regimes. When the CB is ultra-

31

<<   29   30   31   32   33   34   35   >>

More intriguing information