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  • Trend inflation as a workers' discipline device

    Author(s)
    Di Bartolomeo, Giovanni
    Tirelli, Patrizio
    Acocella, Nicola
    Griffith University Author(s)
    Tirelli, Patrizio
    Year published
    2013
    Metadata
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    Abstract
    The paper shows that a monetary policy regime that allows for a positive inflation rate disciplines monopolistic wages setters if these, when setting contracts, internalize the consequences of their choices for economic outcomes over the life of the contract. We also show that discretionary monetary policy has real effects when wage setters are non atomistic, whereas commitment to a positive inflation rate is effective irrespective of the degree of labor market centralization. Finally, the model may explain the different unemployment dynamics in Europe and in the United States, following the 1980 disinflationary episode. Our ...
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    The paper shows that a monetary policy regime that allows for a positive inflation rate disciplines monopolistic wages setters if these, when setting contracts, internalize the consequences of their choices for economic outcomes over the life of the contract. We also show that discretionary monetary policy has real effects when wage setters are non atomistic, whereas commitment to a positive inflation rate is effective irrespective of the degree of labor market centralization. Finally, the model may explain the different unemployment dynamics in Europe and in the United States, following the 1980 disinflationary episode. Our approach suggests that disinflation induced an adverse effect on the labor market wedge and that such effect was stronger in Europe, due to the particular importance of large wage setters.
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    Journal Title
    Empirica
    Volume
    40
    Issue
    2
    DOI
    https://doi.org/10.1007/s10663-012-9183-x
    Subject
    Economics
    Applied economics not elsewhere classified
    Publication URI
    http://hdl.handle.net/10072/336485
    Collection
    • Journal articles

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