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Strategic Monetary Policy with Non-Atomistic Wage-Setters: Some Evidence

Francesco Lippi

No 2819, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Most monetary policy analyses assume an atomistic private sector, thereby ignoring strategic interactions between policy and wage-setting decisions. Yet, non-atomistic wage-setters are a key feature of several industrialized economies. We study the economic consequences of non-atomistic agents and show that this qualifies previous results on the effects and desirability of conservative central bankers. In particular, the central bank aversion to inflation may have a permanent effect on structural employment, while no such effect emerges with atomistic agents. This prediction is consistent with evidence that unemployment is positively associated with conservatism in countries where wage-setting is non-atomistic but not in the countries where wage setting is decentralized.

Keywords: Conservatism; Non-Atomistic Agents; Strategic Monetary Policy; Wage-setting (search for similar items in EconPapers)
JEL-codes: E50 J50 (search for similar items in EconPapers)
Date: 2001-04
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