Institutional and structural interactions in monetary policy and wage / price - bargaining in Varieties of Capitalism :

in Varieties of Capitalism: The Institutional Foundations of Comparative Advantage, P. Hall and D. Soskice, eds., Cambridge University Press, 2001. (Chinese translation forthcoming from SDX Publishers) Robert J. Franzese, Jr.* ABSTRACT: This chapter considers institutional complementarities at the macroeconomic level. It examines unemployment and inflation management in developed democracies, stressing the interactions of wage/price-bargaining institutional and sectoral structure with monetaryauthority credibility and conservatism. It first briefly reviews the coordinated-wage/pricebargaining and central-bank-independence literatures, highlighting theoretical and empirical weaknesses engendered by their failure to consider potential interactions between these macroinstitutions. It then synthesizes and extends these theories, showing how degrees of central-bank independence and of wage/price-bargaining coordination interact with each other and with the sectoral structure of bargaining to determine monetary-policymaker and wage/price-bargainer incentives. The results show credible monetary conservatism and traded-sector-led (not publicsector-led) coordinated bargaining to complement in producing low unemployment and to substitute in producing low inflation. The macroeconomic record of 21 developed democracies over 20 years of flexible exchange rates supports this synthesis and extension, which also resolves the theoretical and empirical problems arising in previous, non-interactive analyses.