I would like to thank seminar participants at Siena University and the 21st Irish Economic Association Annual Conference for helpful comments. I would also like to acknowledge detailed comments and suggestions from Alberto Dalmazzo, Giovanni Di Bartolomeo, Charles Wyplosz, Masao Ogaki, (the Editor), and two anonymous referees, as well as financial support from the Italian Ministry for Education, Universities and Research. Part of this project was undertaken during my stay at the Graduate Institute of International and Development Studies of Geneva. The views expressed herein are those of the author and do not necessarily reflect those of the Bank of Italy. The usual disclaimer applies.
The Welfare Effect of Foreign Monetary Conservatism with Nonatomistic Wage Setters
Version of Record online: 28 NOV 2011
© 2011 The Ohio State University
Journal of Money, Credit and Banking
Volume 43, Issue 8, pages 1719–1734, December 2011
How to Cite
CUCINIELLO, V. (2011), The Welfare Effect of Foreign Monetary Conservatism with Nonatomistic Wage Setters. Journal of Money, Credit and Banking, 43: 1719–1734. doi: 10.1111/j.1538-4616.2011.00465.x
- Issue online: 28 NOV 2011
- Version of Record online: 28 NOV 2011
- Received April 17, 2009; and accepted in revised form March 29, 2011.
- foreign central bank conservatism;
- centralized wage setting;
- open-economy macro
This paper extends the closed-economy analysis of strategic interaction between labor unions and the monetary authority in Lippi (2003) to a two-country, open-economy framework. It sheds light on the real effect of foreign central bank conservatism, which—through a strategic mechanism that operates via the terms of trade between the two independent monetary policymakers—entails wage moderation. The impact of domestic central bank conservatism hinges instead on the combination of three strategic effects.