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The central bank: Restrictions in a world of endogenous money

In: The Interaction of Monetary Policy and Wage Bargaining in the European Monetary Union

Author

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  • Sebastian Dullien

    (Financial Times Deutschland)

Abstract

In the model presented in Chapter 5, it was shown that in a world without a real balance effect but in which the central bank sets the rate of interest, the price level is proportional to the nominal wage level. Output is determined not by the wage level, but by the central bank’s interest rate. All the central bank has to do in this setting is to keep nominal wages from rising too sharply, either by signalling to strategically acting wage setters that it would punish excessive wage increases or by keeping unemployment high enough to lessen wage pressure.

Suggested Citation

  • Sebastian Dullien, 2004. "The central bank: Restrictions in a world of endogenous money," Palgrave Macmillan Books, in: The Interaction of Monetary Policy and Wage Bargaining in the European Monetary Union, chapter 6, pages 149-193, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-00614-0_6
    DOI: 10.1057/9780230006140_6
    as

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