Monopolistic unions, brainard uncertainty, and optimal monetary policy

Vol: 
16/2006
Author name: 
Henckel T
Year: 
2006
Month: 
July
Abstract: 

Some authors have argued that multiplicative uncertainty may benefit society as the cautionary motive reduces the inflation bias. However, when there are non-atomistic wage setters, higher multiplicative uncertainty may raise the wage premium and unemployment and thus reduce welfare. Furthermore, since central bank preferences also affect the wage premium, delegating policy to an independent central banker with an optimal degree of conservatism cannot, in general, deliver a second-best outcome.

Publication file: 

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