Unions Power, Collective Bargaining and Optimal Monetary Policy

Ester Faia and Lorenza Rossi

No 126, Quaderni di Dipartimento from University of Pavia, Department of Economics and Quantitative Methods

Abstract: We study Ramsey policies and optimal monetary policy rules in a model with sticky prices and unionized labour markets. Collective wage bargaining and unions monopoly power dampen wage fluctuations and amplify employment fluctuations relatively to a DNK model. The optimal monetary policy must trade-off between stabilizing inflation and reducing inefficient unemployment fluctuations induced by unions' monopoly power. In this context the monetary authority uses inflation as a tax on unions' rents. The optimal monetary policy rule targets unemployment alongside inflation.

Pages: 32 pages
Date: 2010-10
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: UNION POWER, COLLECTIVE BARGAINING, AND OPTIMAL MONETARY POLICY (2013)
Working Paper: Unions power, collective bargaining and optimal monetary policy (2008)
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