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The welfare effect of foreign monetary conservatism with non-atomistic wage setters

  • Economics


This paper extends the closed economy analysis of strategic interaction between labor unions and the monetary authority in Lippi (REStud 2003) to a two-country open economy framework. It sheds light on the real effect of foreign central bank conservatism, which—through a strategic mechanism that operates via the terms of trade between the two independent monetary policy makers—entails wage moderation. The impact of domestic central bank conservatism hinges instead on the combination of three strategic effects.

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