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

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Cuciniello Vincenzo

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Abstract

In a micro-founded framework in line with the new open economy macroeconomics, the paper shows that a centralized wage setting (CWS) and central bank conservatism (CBC) curb unemployment only if labor market distortions are sizeable. When labor distortions are sufficiently low, employment may be maximized by atomistic wage setters or a populist CB. The comparison between the national monetary policy (NMP) regime and the monetary union (MU) reveals that a move to a MU boosts inflation in the absence of strategic effects. However, when strategic interactions between CB(s) and trade unions are taken into account, the shift to a MU unambiguously increases welfare and employment when monopoly distortions are sizeable either in presence of a sufficiently conservative CB or with fully CWS. Conversely, when labor market distortions are less relevant, the paper shows that an ultra-populist CB or atomistic wage setters are optimal for the society and a shift to a MU regime is unambiguously welfare improving.

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Paper provided by Department of Communication, University of Teramo in its series wp.comunite with number 0014.

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Date of creation: May 2007
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Handle: RePEc:ter:wpaper:0014

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  4. Acocella, Nicola & Di Bartolomeo, Giovanni, 2004. "Non-neutrality of monetary policy in policy games," European Journal of Political Economy, Elsevier, vol. 20(3), pages 695-707, September. [Downloadable!] (restricted)
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  5. Coricelli, Fabrizio & Cukierman, Alex & Dalmazzo, Alberto, 2001. "Economic Performance and Stabilization Policy in a Monetary Union with Imperfect Labour and Goods Markets," CEPR Discussion Papers 2745, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Skott, Peter, 1997. "Stagflationary Consequences of Prudent Monetary Policy in a Unionized Economy," Oxford Economic Papers, Oxford University Press, vol. 49(4), pages 609-22, October. [Downloadable!] (restricted)
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  12. Guzzo, Vincenzo & Velasco, Andres, 2002. "Revisiting the case for a populist central banker: A comment," European Economic Review, Elsevier, vol. 46(3), pages 613-621, March. [Downloadable!] (restricted)
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  20. Vincenzo Cuciniello, 2007. "Optimal monetary policy under a floating regime with non-atomistic wage setters," HEI Working Papers 12-2007, Economics Section, The Graduate Institute of International Studies. [Downloadable!]
  21. Lippi, Francesco, 2002. "Revisiting the case for a populist central banker," European Economic Review, Elsevier, vol. 46(3), pages 601-612, March. [Downloadable!] (restricted)
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  22. Cubitt, Robin P, 1995. " Corporatism, Monetary Policy and Macroeconomic Performance: A Simple Game Theoretic Analysis," Scandinavian Journal of Economics, Blackwell Publishing, vol. 97(2), pages 245-59, June.
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