Unions' inflation aversion and international competitiveness

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jpolmod.2004.11.003 Byline: Giovanni Di Bartolomeo Abstract: The paper explores the consequences of economic integration on wage and monetary policy management. It studies the possibility that openness may discipline labor unions through potential losses created by the worsening in terms of trade (international competitiveness) associated with high wage claims. We find that, contrary to some recent literature, a monetary expansion fails to affect real outcomes and only results in higher inflation, since the claimed wage-moderation mechanism does not work when it is properly modeled. Hence, recent policy recommendations for an expansionary monetary policy in open economies result to be counterproductive, whereas low-inflation targeting remains a first best policy. Author Affiliation: Department of Public Economics, University of Rome La Sapienza, Via Castro Laurenziano, 00161 Rome, Italy