UNIONS,MONOPOLISTIC COMPETITION AND THE OPTIMAL MONETARY REGIME |
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Authors: | Jonathan G James Phillip Lawler |
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Abstract: | This paper considers the optimal monetary regime in a monopolistically competitive economy where wages are set by non‐atomistic (i.e. large) unions. In such a context, the conduct of monetary policy is known to influence not only the equilibrium inflation rate, but also equilibrium employment. Previous contributions which have examined this scenario have commonly concluded that a low degree of accommodation of wages and prices is optimal. This study shows, however, that the framework's principal features imply a highly accommodating policy stance can potentially achieve a superior outcome and, indeed, despite its character, is able to both eliminate unemployment and deliver zero inflation. |
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