Labor Market Regimes and the Effects of Monetary Policy

Journal of Macroeconomics, Vol. 30, pp. 134-156, 2008

30 Pages Posted: 18 Nov 2008 Last revised: 13 Oct 2010

See all articles by Douglas A. Hibbs

Douglas A. Hibbs

Göteborg University - Center for Public Sector Research (CEFOS)

Nicola Acocella

University of Rome I - Department of Methods and Models for Economics, Territory and Finance (MEMOTEF)

Giovanni Di Bartolomeo

Sapienza University of Rome, Department of Economics and Law

Date Written: August 11, 2004

Abstract

In this paper we use a standard multi-union, monopolistic competition model to investigate the qualitative and quantitative responses of inflation and unemployment to monetary policy activism under different institutional arrangements in the labor market, which are defined by the rigidity of nominal wages. We show that the effects of monetary policy on the real economy depend critically on the wage formation regime, and on the ways in which the restrictiveness of policy interacts with product price competition, with union centralization, and with the weight placed on real wages as compared to unemployment in unions' optimal programs. Our interpretation of the results emphasizes how the posture of monetary policy toward inflation influences the strategic calculations that drive union wage setting behavior in different institutional settings.

Keywords: Policy games, monetary policy neutrality, trade unions, monopolistic competition, labor markets

JEL Classification: E52, E58, J51

Suggested Citation

Hibbs, Douglas A. and Acocella, Nicola and Di Bartolomeo, Giovanni, Labor Market Regimes and the Effects of Monetary Policy (August 11, 2004). Journal of Macroeconomics, Vol. 30, pp. 134-156, 2008. Available at SSRN: https://ssrn.com/abstract=605961

Douglas A. Hibbs (Contact Author)

Göteborg University - Center for Public Sector Research (CEFOS) ( email )

Sweden

HOME PAGE: http://www.douglas-hibbs.com/

Nicola Acocella

University of Rome I - Department of Methods and Models for Economics, Territory and Finance (MEMOTEF) ( email )

Via del Castro Laurenziano 9
Roma, Roma 00161
Italy
+390649766359 (Phone)

HOME PAGE: http://www.memotef.uniroma1.it/newdip/utenti/acocellanicola/

Giovanni Di Bartolomeo

Sapienza University of Rome, Department of Economics and Law ( email )

via Castro del Laurenziano 9
Roma, 00191
Italy

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