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- Title
PRODUCTIVITY SHOCKS AND OPTIMAL MONETARY POLICY IN A UNIONIZED LABOR MARKET ECONOMY.
- Authors
MATTESINI, FABRIZIO; ROSSI, LORENZA
- Abstract
A New Keynesian model characterized by labor indivisibilities, unemployment and a unionized labor market is presented. The bargaining process between unions and firms introduces real wage rigidity and creates an endogenous trade-off between inflation and output stabilization. Under an optimal discretionary monetary policy a negative productivity shock requires an increase in the nominal interest rate. An operational instrument rule will satisfy the Taylor principle, but will also require that the nominal interest rate does not necessarily respond one to one to an increase in the efficient rate of interest.
- Subjects
KEYNESIAN economics; MATHEMATICAL models; ECONOMIC models; LABOR market; LABOR supply; DEMAND for money; EMPLOYMENT; PURCHASING power; MONETARY policy
- Publication
Manchester School (1463-6786), 2008, Vol 76, Issue 5, p578
- ISSN
1463-6786
- Publication type
Article
- DOI
10.1111/j.1467-9957.2008.01077.x