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

conservative, instead, the labor demand elasticities are⁴⁹

₁∙      _ ɪ__^k + ^βF ^F__I A__ɪ ʌ

3→∞ "⁹ⁿ   пн k() _n + ^f$f(1 — a)   ∖    ⁿH /  ’

These relations prove equation (42), (44) and (43). In general, the sign of ^dηββ- not only
depends on the adverse output and competition effect but also on the other CBC as follows:

dηN   к(пн — 1)(k + βf^F)^n [k + βF^kF — (k@N + βF^f(1 — α))σ]

^dβ ~ [k(nn — 1)(k + β F θF )+ пн β(βF Θn Θf (1 — a) + kθN )]²

In the case of a MU the sign of

dηu   k(nн — 1)(1 — a) [1 — (1 — α)σ]

^dβ     [kfa — 1)+ пн (1 — α)²β]²

The first part of Proposition 5 is proved by taking the partial derivative of (38), (39) and
(40) with respect to CBC and using equation (50) and (52) as follows:

dl a 1 dη_r
dβ k η2 dβ

smaller than the adverse output in a MU, ɪɪ^. Now what remains to assess is whether
the labor demand elasticity in MU and NMP intersect in the (β,η_r) plane. As a matter

^k+^F ®F1

(1-a)βp Θ_f +kθ_κ ^ 1-α ∙

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