Scandinavian Working Papers in Economics
Working Paper Series,
Uppsala University, Department of Economics
No 2006:31: Monetary Policy and Staggered Wage Bargaining when Prices are Sticky
Mikael Carlsson () and Andreas Westermark ()
Additional contact information
Mikael Carlsson: Research Department, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Andreas Westermark: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Abstract: In this paper, we outline a baseline DSGE model which enables a straightforward analysis of wage bargaining between firms and ouseholds/unions in a model with both staggered prices and wages. Relying on empirical evidence, we assume that prices can be changed whenever wages are changed.This feature of the model greatly reduces the complexity of the price and wage setting decisions; specifically it removes complicated interdependencies between current and future price and wage decisions. In an application of the model we study the interaction between labor-market institutions and monetary policy choices, and the consequences for welfare outcomes. Specifically, we focus on the relative bargaining power of unions. We find that, for a standard specification of the monetary policy rule, welfare is substantially affected by the degree of relative bargaining power, but that this effect can be neutralized by optimal discretionary policy.
Keywords: Monetary Policy; Labor Market; Bargaining
26 pages, First version: December 19, 2006. Revised: June 5, 2009.
Full text files
FULLTEXT01.pdf
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