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The Interaction between the Central Bank and a Single Monopoly Union Revisited: Does Greater Monetary Policy Uncertainty Reduce Nominal Wages?

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  • Luigi Bonatti

Abstract

Previous papers modelling the interaction between the central bank and a single monopoly union demonstrated that greater monetary policy uncertainty reduces the union's nominal wage. This paper shows that this result does not hold in general, since it depends on peculiar specifications of the union's objective function. In particular, I show that greater monetary policy uncertainty raises the nominal wage whenever union members tend to be more sensitive to the risk of getting low real wages than to the risk of remaining unemployed. This conclusion appears consistent with the evidence showing that greater monetary authority's transparency reduces average inflation.

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  • Luigi Bonatti, 2007. "The Interaction between the Central Bank and a Single Monopoly Union Revisited: Does Greater Monetary Policy Uncertainty Reduce Nominal Wages?," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 36(3), pages 247-258, November.
    • Handle: RePEc:bla:ecnote:v:36:y:2007:i:3:p:247-258
    DOI: 10.1111/j.1468-0300.2007.00186.x
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    References listed on IDEAS

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    1. Helge Berger & Carsten Hefeker & Ronnie Schöb, 2004. "Optimal Central Bank Conservatism and Monopoly Trade Unions," IMF Staff Papers, Palgrave Macmillan, vol. 51(3), pages 585-605, November.
    2. Georgios Chortareas & David Stasavage & Gabriel Sterne, 2002. "Does it pay to be transparent? international evidence form central bank forecasts," Review, Federal Reserve Bank of St. Louis, vol. 84(Jul), pages 99-118.
    3. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
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