The interaction of monetary policy and wage bargaining in the European Monetary Union. Lessons from the endogenous money approach

Abstract:

This work asserts that it is the role of Central Banks to control inflation and that they should do so independent of political interference; unemployment and growth are not the concern of Central Bankers. Unemployment and growth are a function of the labour market. The nexus of these two statements is the essence of the book.

The work is organised over six substantive chapters between an introduction and a conclusion. Chapter two reviews the literature on the interaction between monetary policy and wage bargaining and examines the vagaries existing between selected European countries and the influence of country size. Chapter three offers a possible explanation for why the models do not work for large countries. How monetary policy can influence aggregate demand in a world without real balances, via the interest rate mechanisms is the subject of chapter four. Chapter five presents a macro-model of monopolistic competition without building on the real balance effect and explores the impact on wage levels, aggregate demand and aggregate employment. Chapter six then discusses the role of the central bank in the financial markets and its management of the macroeconomic capital stock. The author returns in chapter seven to the argument posed at the outset - how do wage bargainers and the central bank interact? - and what characteristics should be present in the relationship that current economic policies seem unable to create.

The work will interest scholars and students of politics and economics.

Sebastian Dullien is Economics Correspondent at the Financial Times Deutschland.