Productivity Shock and Optimal Monetary Policy in a Unionized Labor Market. Forthcoming: The Manchester School

Lorenza Rossi () and Fabrizio Mattesini ()

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. Download Info

JEL-codes: E24 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-lab, nep-mac and nep-mon
Date: 2007, Revised 2008
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http://mpra.ub.uni-muenchen.de/8414/ orginal version
http://mpra.ub.uni-muenchen.de/8775/ revised version

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