Trend inflation as a workers disciplining device in a general equilibrium model
Giovanni Di Bartolomeo (),
Nicola Acocella and
Patrizio Tirelli ()
wp.comunite from Department of Communication, University of Teramo
In New Keynesian models nominal rigidities determine socially inefficient outcomes. Our paper reverses this view: properly designed monetary policies may take advantage of predetermined nominal wages to discipline monopolistic wage setters. This, in turn, requires accepting a non-zero inflation rate. Discretionary monetary policy is effective when wage setters are non atomistic. Inflation targeting has real effects irrespective of the degree of labor market centralization.
Keywords: Inflation bias; discretionary monetary policy; non-zero inflation targeting; unemployment; strategic wage setter; labor unions (search for similar items in EconPapers)
JEL-codes: E52 E58 J51 E24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Working Paper: Trend inflation as a workers disciplining device in a general equilibrium model (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:ter:wpaper:0043
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