Monetary policy with asymmetries in the asset markets participation, counter-cyclical fiscal policy and «non-atomistic» wage setters

Xakousti Chrysanthopoulou () and Moïse Sidiropoulos ()
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Xakousti Chrysanthopoulou: Aristotle University of Thessaloniki
Moïse Sidiropoulos: Aristotle University of Thessaloniki, BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique

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Abstract: The purpose of the paper is to study the monetary policy implications of unionized labor markets in a New Keynesian framework, augmented with asymmetries in the asset markets participation and counter-cyclical fiscal policy. We show that the concern of «non-atomistic» wage setters for their members that cannot smooth consumption, the political exchange between government and unions (in the form of «Social Pacts») and the ability of monetary policy to activate fiscal policy, lead to the following results: i) the determinacy regions may be dependent on the incentive to moderate wage claims, and hence on institutional parameters, and ii) the monetary authority's policy trade-off between the variability of inflation and the output gap, induced by cost-push shocks, is endogenized and hence contingent on the distortions in labor and asset markets and the degree of fiscal policy counter-cyclicality. Most importantly, in our framework, this trade-off is improved, relative to an economy with «atomistic» wage setters and when counter-cyclical fiscal policy is aggressive. These findings suggest the stabilization role of the institutions, when the monetary authority is unable to commit to future policies.

Keywords: Non-atomistic» wage setters; Monetary policy; Fiscal policy; Asymmetries in the asset markets participation; «Social pacts»; Policy trade–offs (search for similar items in EconPapers)
Date: 2018-11
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Published in The Journal of Economic Asymmetries, 2018, 18, pp.e00093. ⟨10.1016/j.jeca.2018.e00093⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03692191

DOI: 10.1016/j.jeca.2018.e00093

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