Productivity shocks and Optimal Monetary Policy in a Unionized Labor Market Economy

Fabrizio Mattesini () and Lorenza Rossi ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper presents a New Keynesian model characterized by labor indivisibilities, unemployment and a unionized labor market. The bargaining process between unions and firms introduces real wage rigidity and creates an endogenous trade-off between inflation and output stabilization. Under an optimal discretionary monetary policy a negative productivity shock requires an increase in the nominal interest rate. Moreover, an operational instrument rule will satisfy the Taylor principle, but will also require that the nominal interest rate does not necessarily respond one to one to an increase in the efficient rate of interest. The model calibration studies the response of the unionzed economy to productivity shocks under different monetary policy rules.

Keywords: Optimal Monetary Policy; Unionized Labor Market; Indivisible Labor; Taylor Rule (search for similar items in EconPapers)
JEL-codes: E24 J51 E52 E32 J23 E50 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
Date: 2006-06, Revised 2008-03
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Downloads: (external link)
http://mpra.ub.uni-muenchen.de/1139/ orginal version
http://mpra.ub.uni-muenchen.de/1877/ revised version
http://mpra.ub.uni-muenchen.de/8190/ revised version

Related works:
Working Paper: Productivity shocks and Optimal Monetary Policy in a Unionized Labor Market Economy (2007)
Working Paper: Productivity shocks and optimal monetary policy in a unionized labor market economy (2007)
Journal Article: PRODUCTIVITY SHOCKS AND OPTIMAL MONETARY POLICY IN A UNIONIZED LABOR MARKET ECONOMY (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:1139

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