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(Wp 2005-03) Openness, Centralized Wage Bargaining, And Inflation, Joseph P. Daniels, Farrokh Nourzad, David D. Vanhoose

Economics Working Papers

This paper develops a model of an open economy containing both sectors in which wages are market-determined and sectors with wage-setting arrangements. A portion of the latter group of sectors coordinate their wages, taking into account that their collective actions influence the equilibrium inflation outcome in an environment in which the central bank engages in discretionary monetary policymaking. Key predictions forthcoming from this model are (1) increased centralization of wage setting initially causes inflation to increase at low degrees of wage centralization but then, as wage centralization increases, results in an inflation dropoff; (2) a greater degree of centralized wage …