The nonneutrality of monetary policy with large price or wage setters


Journal Article

Monetary rules matter for the equilibrium rate of employment when the number of price-wage setters is small, even when assuming rational expectations, complete information, central bank precommitment, and absence of nominal rigidities. If the central bank is nonaccommodating, sufficiently large unions, bargaining independently, have an incentive to moderate sectoral money wages, and thereby expected real wages. The result is an increase in the real money supply, and hence higher demand and employment. This does not hold with accommodating monetary policy since unions' wage decisions cannot then affect the real money supply. A similar argument holds for large monopolistically competitive price setters. © Oxford University Press 2001.

Full Text

Duke Authors

Cited Authors

  • Soskice, D; Iversen, T

Published Date

  • January 1, 2000

Published In

Volume / Issue

  • 115 / 1

Start / End Page

  • 265 - 284

International Standard Serial Number (ISSN)

  • 0033-5533

Digital Object Identifier (DOI)

  • 10.1162/003355300554737

Citation Source

  • Scopus