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Inflation and openness with non-atomistic wage
Scottish Journal of Political Economy (2001)
  • Lilia Cavallari, University of Rome III
This paper analyses the impact of trade openness on inflation in a strategic framework characterised by monopolistic production in the domestic sector and unionised labour markets. By stressing the interplay between internal and external sources of economic distortion, we show that the economy's inflationary bias reduces up to a critical level of trade openness. Beyond this threshold, wage setters may be induced to behave more aggressively in open economies, leading to higher equilibrium inflation. Based on a regression analysis that investigates the combined effect of labour market institutions and openness on inflation across nineteen OECD economies, we show that inflation is negatively related to openness when wage bargaining is decentralised, while there is virtually no link between openness and inflation at higher levels of wage centralisation.
Publication Date
May, 2001
Citation Information
Lilia Cavallari. "Inflation and openness with non-atomistic wage" Scottish Journal of Political Economy Vol. 48 Iss. 2 (2001)
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