The Interaction of Monetary Policy and Wage Bargaining in the EMU Lessons from the Endogenous Money Approach

by Dullien, Sebastian

• ISBN13: 9781403941510
• ISBN10: 1403941513
• Format: Hardcover
• Copyright: 2005-01-15
• Publisher: Palgrave Macmillan

Summary

Sebastian Dullien gives a novel explanation for unemployment and inflation in the Euro-Zone. He argues that unemployment stems from a lack of cooperation between unions and monetary authorities: In an economy with endogenous money as EMU, wage setters are responsible for price stability while the central bank is responsible for the level of output. Cooperation between both actors is necessary for high employment and low inflation. The current institutional set-up is found to be unable to assure cooperation.

Author Biography

Sebastian Dullien is Economics Correspondent at the Financial Times Deutschland. He also teaches at the Freie UniversitSt in Berlin.

Table of Contents

List of Figures	ix
List of Tables	xi
Acknowledgements	xiii
1 Introduction: The Unsolved Unemployment-Inflation Puzzle	1	(10)
1.1 The macroeconomic consensus after the end of the Keynesian revolution	2	(2)
1.2 Empirical experience: challenging the consensus	4	(2)
1.3 Interaction between monetary policy and wage bargaining	6	(5)
2 Bargaining Structures and the Central Bank: Literature and Empirics	11	(37)
2.1 Early literature on bargaining structures	11	(3)
2.2 Monetary policy externality	14	(7)
2.3 European empirics: does the theory fit?	21	(25)
Appendix 2.1: GDP Growth and Component Accounting	46	(2)
3 The Real Balance Effect: Shortcomings	48	(28)
3.1 The real balance effect revisited	49	(2)
3.2 Money: net wealth?	51	(17)
3.3 Exogenous money supply?	68	(8)
4 Monetary Policy Transmission in a World of Endogenous Money	76	(21)
4.1 The instrument: the short-term interest rate	77	(9)
4.2 Investment and the interest rate	86	(3)
4.3 Consumption and the interest rate	89	(4)
4.4 Notes on the exchange rate channel	93	(2)
4.5 Transmission in the euro-zone: empirical evidence	95	(2)
5 Output and Prices in a World Without the Real Balance Effect	97	(52)
5.1 Equilibrium in a baseline model	98	(11)
5.2 The labour market and wage dynamics	109	(14)
5.3 The central bank	123	(13)
Appendix 5.1: The Basic Setup	136	(3)
Appendix 5.2: A Small Union vis-à-vis a Large Union	139	(7)
Appendix 5.3: Disequilibrium Dynamics	146	(3)
6 The Central Bank: Restrictions in a World of Endogenous Money	149	(45)
6.1 Financing investment by money creation	150	(3)
6.2 The microeconomics of endogenous money	153	(8)
6.3 A macroeconomic profile of endogenous money	161	(17)
Appendix 6.1: Microeconomic Portfolio Theory	178	(6)
Appendix 6.2: Aggregate Portfolio Mathematics	184	(4)
Appendix 6.3: Graphical Representation	188	(3)
Appendix 6.4: Inside Money, Tobin's Monetised Capital and Public Debt	191	(3)
7 The Optimal Policy Mix and Logic of a Social Pact	194	(34)
7.1 The optimal policy mix in EMU	195	(9)
7.2 EMU: coordination failure or cooperation failure?	204	(16)
7.3 A social pact as a possible remedy	220	(8)
8 Conclusions and Outlook	228	(4)
Appendices: Monetary and Wage Policy in Standard Models	232	(8)
Appendix A.1 The transmission of monetary policy	232	(5)
Appendix A.2 The money stock as an automatic stabiliser	237	(1)
Appendix A.3 The role of wage policy	237	(3)
Notes and References	240	(18)
Bibliography	258	(12)
Index	270