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Trend inflation as a workers disciplining device in a general equilibrium model

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Author Info
Di Bartolomeo Giovanni
Acocella Nicola
Tirelli Patrizio

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Abstract

In New Keynesian models nominal rigidities determine socially inefficient outcomes. Our paper reverses this view: properly designed monetary policies may take advantage of predetermined nominal wages to discipline monopolistic wage setters. This, in turn, requires accepting a non-zero inflation rate. Discretionary monetary policy is effective when wage setters are non atomistic. Inflation targeting has real effects irrespective of the degree of labor market centralization.

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Paper provided by Department of Communication, University of Teramo in its series wp.comunite with number 0043.

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Date of creation: Jun 2008
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Handle: RePEc:ter:wpaper:0043

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Web page: http://wp.comunite.it/

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Related research
Keywords: Inflation bias; discretionary monetary policy; non-zero inflation targeting; unemployment; strategic wage setter; labor unions;

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Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution

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