Unions' inflation aversion and international competitiveness
In: Journal of policy modeling: JPMOD ; a social science forum of world issues, Band 27, Heft 2, S. 137-142
ISSN: 0161-8938
The paper explores the consequences of economic integration on wage and monetary policy management. It studies the possibility that openness may discipline labor unions through potential losses created by the worsening in terms of trade (international competitiveness) associated with high wage claims. We find that, contrary to some recent literature, a monetary expansion fails to affect real outcomes and only results in higher inflation, since the claimed wage-moderation mechanism does not work when it is properly modeled. Hence, recent policy recommendations for an expansionary monetary policy in open economies result to be counterproductive, whereas low-inflation targeting remains a first best policy. [Copyright 2004 The Society for Policy Modeling; published by Elsevier Inc.]