Optimal Monetary Policy with Labor Market Frictions: The Role of the Wage Channel

Takeki Sunakawa

Journal of Money, Credit and Banking, 2015, vol. 47, issue 6, 1119-1147

Abstract: This paper introduces right‐to‐manage bargaining into a labor search model with sticky prices instead of standard efficient bargaining and examines the Ramsey‐optimal monetary policy. Without real wage rigidity, even when the steady state is inefficient, price stability is nearly optimal in response to technology or government shocks. Right‐to‐manage bargaining creates the wage channel to inflation, because there is a direct relationship between real wages and real marginal cost. In the presence of the wage channel, price markups consist of only real marginal cost, and real wages and hours per worker are determined such as in the Walrasian labor market.

Date: 2015
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https://doi.org/10.1111/jmcb.12239

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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:47:y:2015:i:6:p:1119-1147

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