Introduction: The Unsolved Unemployment-Inflation Puzzle -- Development of Literature on Interaction of Monetary Policy and Wage Bargaining -- European Empirics -- Problem with Standard Approaches: Criticising the Real Balance Effect -- Monetary Policy Transmission in a World of Endogenous Money -- Output and Prices in a World Without the Real Balance Effect -- The Central Bank: Restrictions in a World of Endogenous Money -- Optimal Policy Mix and Logic of a Social Pact -- Conclusion
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 and monopolistic competition in good markets, the standard economic textbooks' distribution of macroeconomic responsibilities are turned upside down - wage setters are now responsible for price stability, while the European Central Bank is responsible for level of output. Only unions with a small and limited constituency can increase employment by simple wage restraint. However, this is shown to be a beggar-thy-neighbour policy, destroying employment elsewhere. On a European level, only when unions and the central bank cooperate can high employment and low inflation be achieved simultaneously. The institutional set-up with the 1999 Cologne process is found to be unable to assure such a cooperation
Bibliography
Includes bibliographical references (pages 258-269) and index
