English, Article edition: Rethinking the Role of Monetary Policy and Wage Bargaining in a World Without the Real Balance Effect Sebastian Dullien

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Physical Description
  • article
Language
  • English

Edition details

Title
  • Rethinking the Role of Monetary Policy and Wage Bargaining in a World Without the Real Balance Effect
Author
  • Sebastian Dullien
Physical Description
  • article
Notes
  • 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.
  • monetary policy, wage bargaining, unemployment, heterodox economics
  • RePEc:int:journl:v:3:y:2006:i:2:p:279-304
Language
  • English
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