International monetary policy cooperation in economies with centralized wage setting

Henrik Jensen

Open Economies Review, 1993, vol. 4, issue 3, 269-285

Abstract: We consider a standard two-country monetary policy game with fixed nominal wage contracts. The policy regime is either non-cooperative or cooperative. We extend conventional analyses by deriving the natural rate of employment endogenously through monopoly union decision-making. As unions attempt to affect the real exchange rate, wages are set inefficiently high. Such attempts are shown to be strongest under monetary cooperation. Therefore, in comparison with non-cooperation, employment is lowest, and, in effect, consumer price inflation is highest, under monetary cooperation, i.e., international monetary cooperation is disadvantageous. Copyright Kluwer Academic Publishers 1993

Keywords: monetary policy games; international policy coordination; monopoly unions (search for similar items in EconPapers)
Date: 1993
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DOI: 10.1007/BF01000045

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