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Conclusions and outlook

Sebastian Dullien ()

Chapter 8 in The Interaction of Monetary Policy and Wage Bargaining in the European Monetary Union, 2004, pp 228-231 from Palgrave Macmillan

Abstract: Abstract This book started with a question: how do wage bargainers and monetary policy jointly influence output, employment and inflation? While older standard models concluded that it was wage bargainers who set real wages, which determine output and employment, while the central bank just set the growth rate of money supply, thus determining the rate of inflation, recent literature, as represented by the SICCD models has come to a different conclusion: the setup of a monetary policy rule can change the wage setters’ behaviour. If, for example, it is clear that the central bank will set a given nominal money supply no matter what the wage setters are doing, unions can increase the real money supply (Soskice–Iversen 2000) by lowering their wage demands and thus pushing down prices. The increased real money supply would then lead to higher output and employment. If wage setters are a large enough force to be acting strategically, and if they care enough about unemployment, they can be expected to make use of this possibility. A monetary policy rule can thus have non-neutral effects in the long run.

Keywords: Interest Rate; Monetary Policy; Central Bank; Money Supply; Nominal Wage (search for similar items in EconPapers)
Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-00614-0_8

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DOI: 10.1057/9780230006140_8

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