Macroeconomic interdependence under collective wage bargaining

Vincenzo Cuciniello

Working Papers from Center for Fiscal Policy, Swiss Federal Institute of Technology Lausanne

Abstract: This paper uses a two-country, sticky-price model with non-atomistic wage setters to study the role of collective wage bargaining in the propagation of monetary shocks. I find that the welfare transmissions of a monetary expansion are reinforced by different labor market structures. Non-atomistic domestic unions anticipate that their wage demands raise real labor income through a movement of the terms of trade. This leads to an additional channel of transmission of monetary policy that goes through aggregate supply. Yet, workers benefit more from a monetary expansion when the exchange rate pass-through is not limited and the elasticity of substitution across traded goods is sizable. It follows that wage mark-ups charged by unions endogenously vary with those structural parameters. In particular, labor and product market distortions are strategic substitute in affecting the perceived labor demand elasticity.

Keywords: non-atomistic agents; interdependence; exchange rate fluctuation; wage setting (search for similar items in EconPapers)
JEL-codes: F41 F42 J5 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2009-07
New Economics Papers: this item is included in nep-cba, nep-mac and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:cif:wpaper:200906

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