Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/277082 
Year of Publication: 
2006
Citation: 
[Journal:] Intervention. Zeitschrift fuer ├ľkonomie / Journal of Economics [ISSN:] 2195-3376 [Volume:] 03 [Issue:] 2 [Year:] 2006 [Pages:] 279-304
Publisher: 
Metropolis-Verlag, Marburg
Abstract: 
In standard macroeconomic models (new classical, AS-AD, monopolistic competition etc.) monetary policy determines the price level. Output and employment are determined in the labour market where nominal wages are set (possibly under the influence of unions), which together with the price level yield real wages. This paper shows that including nominal wages instead of real balances in the aggregate demand function of a standard monopolistic competition model changes this conclusion completely. In a model with micro-founded investment decisions, wage setters now control the price level. Monetary policy determines output and employment. Neither actor can influence real wages and profits, which are determined by the degree of monopolisation. Further, this conclusion fits well the stylised facts of the Euro area and provides an explanation for high unemployment in Europe.
Subjects: 
monetary policy
wage bargaining
unemployment
heterodox economics
JEL: 
E61
E64
E52
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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