Citation:
Iversen, Torben. 2000. “The Non-Neutrality of Monetary Policy with Large Price or Wage Setters”. Copy at http://www.tinyurl.com/y6n6twub
Abstract:
Monetary rules matter for the equilibrium rate of employment when the number of price–wage setters is small. If the central bank is non–accommodating, sufficiently large unions, bargaining independently, have an incentive to moderate sectoral money wages, and thereby expected real wages. The result is an increase in the real money supply, and hence higher demand and employment. This does not hold, however, with accommodating monetary policy since unions? wage decisions cannot then affect the real money supply. A similar argument holds for large monopolistically–competitive price setters. Rational expectations, complete information, central bank pre–commitment and absence of nominal rigidities are assumed.