Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153124
Authors: 
Gnocchi, Stefano
Year of Publication: 
2006
Series/Report no.: 
ECB Working Paper 690
Abstract: 
The purpose of the paper is to design optimal monetary policy rules in a New-Keynesian model featuring the presence of non-atomistic unions. It is shown that concentrated labor markets call for more aggressive inflation stabilization. This is because the central bank is able to induce wage restraint and to push output towards Pareto efficiency by implementing tougher stabilization policies. Moreover, the welfare cost of deviation from the optimal policy is increasing in wage setting centralization. The analysis is performed in the context of a linear-quadratic approach where the welfare measure is derived resorting to a second order approximation to households’ lifetime utility.
Subjects: 
Inflation
monetary policy
Unions
JEL: 
E24
E52
Document Type: 
Working Paper

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