Open Economies Review

, Volume 4, Issue 3, pp 269–285 | Cite as

International monetary policy cooperation in economies with centralized wage setting

  • Henrik Jensen
Article

Abstract

We consider a standard two-country monetary policy game with fixed nominal wage contracts. The policy regime is either non-cooperative or cooperative. We extend conventional analyses by deriving the natural rate of employment endogenously through monopoly union decision-making. As unions attempt to affect the real exchange rate, wages are set inefficiently high. Such attempts are shown to be strongest under monetary cooperation. Therefore, in comparison with non-cooperation, employment is lowest, and, in effect, consumer price inflation is highest, under monetary cooperation, i.e., international monetary cooperation is disadvantageous.

Key words

monetary policy games international policy coordination monopoly unions 

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Copyright information

© Kluwer Academic Publishers 1993

Authors and Affiliations

  • Henrik Jensen
    • 1
  1. 1.Centre for International Economics and Institute of EconomicsUniversity of AarhusAarhusDenmark

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