Strategic Monetary Policy with Non-Atomistic Wage-Setters: Some Evidence

31 Pages Posted: 5 Jun 2001

See all articles by Francesco Lippi

Francesco Lippi

LUISS university; Einaudi Institute for Economics and Finance (EIEF); Centre for Economic Policy Research (CEPR)

Date Written: April 2001

Abstract

Most monetary policy analyses assume an atomistic private sector, thereby ignoring strategic interactions between policy and wage-setting decisions. Yet, non-atomistic wage-setters are a key feature of several industrialized economies. We study the economic consequences of non-atomistic agents and show that this qualifies previous results on the effects and desirability of conservative central bankers. In particular, the central bank aversion to inflation may have a permanent effect on structural employment, while no such effect emerges with atomistic agents. This prediction is consistent with evidence that unemployment is positively associated with conservatism in countries where wage-setting is non-atomistic but not in the countries where wage setting is decentralized.

Keywords: Conservatism, non-atomistic agents, strategic monetary policy, wage-setting

JEL Classification: E50, J50

Suggested Citation

Lippi, Francesco, Strategic Monetary Policy with Non-Atomistic Wage-Setters: Some Evidence (April 2001). Available at SSRN: https://ssrn.com/abstract=272200

Francesco Lippi (Contact Author)

LUISS university ( email )

Viale di Villa Massimo, 57
Rome, 00161
Italy

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Due Macelli, 73
Rome, 00187
Italy

Centre for Economic Policy Research (CEPR)

London
United Kingdom