Stabilisation, Policy Targets and Unemployment in Imperfectly Competitive Economies

George Bratsiotis, Christopher Martin

Research output: Contribution to journalArticle

35 Citations (Scopus)

Abstract

This paper argues that the rate of equilibrium unemployment depends on the objectives of the Central Bank. In a model where the Central Bank uses monetary policy to stabilise the economy, we show that unemployment and inflation will be lower with an inflation target than with targets for output, money or nominal GDP. The intuition for this is that the elasticities of demand in both the product and the labour markets are greater when there is an inflation target; we show that this leads to a lower mark-up of price over marginal cost and makes wages more sensitive to unemployment.

Original languageEnglish
Pages (from-to)241-256
Number of pages16
JournalThe Scandinavian Journal of Economics
Volume101
Issue number2
DOIs
Publication statusPublished - Jun 1999

Keywords

  • Imperfect competition
  • Inflation targets
  • Stabilisation and monetary policy
  • Unemployment

ASJC Scopus subject areas

  • Economics and Econometrics

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