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



If we evaluate the (61) at the n = 1 and β = O, we obtain

and


[Ui,N ]n^-ɪ   2


/    k^βp θf    2

1Nn +βFΘf-ɑɔ J


(63)


(64)


[Ui,N ^=0 = [Ui.l ^=0 =

(65)


It is apparent that expression (63) is greater (smaller) than expression (65) iff σ <
fcθNj!∕β⅛F⅛h) l(σλΘn I '>βθF√''ι -))- similarlY exPression (64) is greater (smaller) than
expression (65) iff
σ < ɪɪ- (σ > ɪɪ-). Moreover relation (64) is always larger than rela-
tion (63). Recall that both an ultra-populist CB and atomistic wage setters lead the labor
demand elasticity to be equal to
σ, i.e. the case of monopolistic competition. ■

References

[1] Acocella N., Di Bartolomeo G. (2004), Non-neutrality of monetary policy in policy
games,
European Journal of Political Economy, 20(3), pp. 695-707.

[2] Barro R., Gordon D. (1983), A positive theory of monetary policy in a natural rate
model,
Journal of Political Economy 91, pp. 589-610.

[3] Blanchard 0.J., Kiyotaki (1987), Monopolistic competition and the effects of aggre-
gate demand,
American Economic Review, 77, pp. 722-45.

[4] Calmfors L., Driffill J. (1988), Bargaining structure, corporatism, and macroeconomic
performance,
Economic Policy, pp. 14-61.

[5] Calmfors L. (1993), Centralization of wage bargaining and macroeconomic perfor-
mance - A survey,
OECD Economic Studies 21, pp. 161-91.

[6] Camfors L. (2001), Wage and wage bargaining institutions in EMU: A survey of the
issues,
Empirica, 28, pp.325-51.

[7] Cavallari L. (2004), Inflationary performance in a monetary union with large wage
setters,
Monetary Policy, Fiscal Policy and Labour Markets. Macroeconomic Policy-
making in the EMU
edited by Beetsma R., Favero C., Missale A., Muscatelli A.,
Natale P. and P. Tirelli, Cambridge University Press, Cambridge.

35



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