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Natural Unemployment, the Role of Monetary Policy and Wage Bargaining: A Theoretical Perspective. CES Working Paper, no. 133, 2006

Collignon, Stefan. (2006) Natural Unemployment, the Role of Monetary Policy and Wage Bargaining: A Theoretical Perspective. CES Working Paper, no. 133, 2006. [Working Paper]

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    Abstract

    This paper models unemployment as a general equilibrium solution in labor and capital markets, while the natural rate hypothesis explains unemployment simply as a partial equilibrium in the labor market. It is shown that monetary policy can have long-run effects by affecting required returns on capital and investment. If monetary policy is primarily concerned with maintaining price stability, the interaction between wage bargaining and the central bank’s credibility as an inflation fighter becomes a crucial factor in determining employment. Different labor market institutions condition different monetary policy reactions. With centralized wage bargaining, a central bank mandate focusing primarily on price stability is sufficient. With an atomistic labor market, the central bank must also consider output as a policy objective.

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    Item Type: Working Paper
    Subjects for non-EU documents: EU policies and themes > Policies & related activities > economic and financial affairs > monetary policy
    EU policies and themes > Policies & related activities > employment/labour market > employment/unemployment
    EU policies and themes > Policies & related activities > employment/labour market > industrial/labour relations
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Harvard University, Center for European Studies > CES Working Papers Series
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 08 May 2009
    Page Range: p. 22
    Last Modified: 15 Feb 2011 17:58
    URI: http://aei.pitt.edu/id/eprint/9028

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