Trend inflation as a workers disciplining device in a general equilibrium model

Giovanni Di Bartolomeo (), Nicola Acocella and Patrizio Tirelli

No 43, CIMEO, Sapienza University of Rome from Department of Economics and Law, Sapienza University of Rome

Abstract: 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: E24 E52 E58 J51 (search for similar items in EconPapers)
Date: 2008-06
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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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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