Monetary policy rules and wage bargaining structure in a New-Keynesian general equilibrium model with strategic interaction between unions and monetary authority

Authors

DOI:

https://doi.org/10.5902/2526629285149

Keywords:

Monetary policy, Inflation, Unemployment

Abstract

The objective of this article is to present a New Keynesian general equilibrium model in which the multiplicity of wage and price setters in a framework of strategic interaction between the private sector and monetary authority is a sufficient condition for non-neutrality of the monetary policy rule. In this theoretical framework we can show that (i) strategic interaction between monetary authority and labor unions produce the so-called “Calmfors-Driffil effect” in which different levels of centralization in wage bargains allowed to reach different results in terms of equilibrium unemployment rate; (ii) a higher level of conservatism in the conduction of monetary policy; i.e. higher weight for deviations of price inflation from the target in the monetary policy rule, for a given level of centralization of wage bargaining, produce better outcomes in terms of inflation and unemployment.  These results shows that there is a trade-off between centralization of wage bargaining and a tighter monetary policy rule: the more centralized is the wage bargaining structure lower can be the weight of inflation in the monetary policy rule that allowed Central Bank could be to achieve some target level of inflation and unemployment. So, the model proposed here shows that income policies can be, in principle, such effective as monetary policy as a device for improve macroeconomic performance of capitalist economies.

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Author Biographies

José Luis da Costa Oreiro, University of Brasília

PhD in Economics in 2000 from the Institute of Economics of the Federal University of Rio de Janeiro. Associate Professor, Department of Economics, University of Brasilia. Professor of the Doctoral Program in Economic Integration at the University of the Basque Country (Bilbao/Spain). Researcher Level I of CNPq. Coordinator of the Research Area Developmental Macroeconomics: perspectives from the global South. Senior Member of the Post Keynesian Economics Society and Coordinator of the research group Structuralist Macroeconomics of Development registered in the directory of research groups of CNPq. He has published more than 140 articles in scientific journals in Brazil and abroad. He is the author of the books "Macroeconomics of Development: A Keynesian Perspective" (GEN, 2016) and "Post-Keynesian MacrodynamicsGrowth and Income Distribution" (Alta Books, 2018). He won the Brazil Economics Award in the Book Category (2017 and 2021).

Flávio Augusto Corrêa Basílio, Bank of Brazil

Flávio Basilio is an economist with expertise in finance, governance, risk management, compliance, and leadership. He holds a master’s and PhD in economics and has held significant positions at Banco do Brasil.

Basilio has also served in several high-level positions in the federal government, including Secretary of Homeland Security, Secretary of Defence Products, and Deputy Secretary of International Affairs of the Ministry of Planning. He has been a member of various committees, including the Foreign Trade and International Financing Committees (GECEX and COFIG), the National Council of Metrology, Standardization, and Industrial Quality (CONMETRO), and the National Fund for Scientific and Technological Development (FNDCT).

Basilio is also an accomplished academic, teaching economics, macroeconomics, and Brazilian economics at the University of Brasília, as well as teaching statistics, finance, financial management, corporate finance, and analysis of economic scenarios at UDF, FGV, and Mackenzie University.

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Published

2023-12-12

How to Cite

Oreiro, J. L. da C., & Basílio, F. A. C. (2023). Monetary policy rules and wage bargaining structure in a New-Keynesian general equilibrium model with strategic interaction between unions and monetary authority. Práticas De Administração Pública, 6(2), 91–129. https://doi.org/10.5902/2526629285149

Issue

Vol. 6 No. 2 (2022): Práticas de Administração Pública

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