Abstract
Discussion of “Unemployment and Monetary Policy in Switzerland” by Peter Kugler and George Sheldon
Highlights
In their contribution, Kugler and Sheldon (2010) ( KS) adopt the so-called Battle-of-the-Mark-ups model developed by Layard and his co-authors (1986, 1991) to address a series of issues regarding the link between inflation and the labour market as well as the behaviour of inflation itself
The core of the model is the Phillips curve of equation (7), in which – in the absence of short-term shocks to either wages or prices – changes in inflation are explained by labour market conditions, where the latter are defined as the difference between the current level of unemployment and an empirically identified equilibrium level, the NAIRU
Wages play a key role in the transmission of inflationary pressures
Summary
In their contribution, Kugler and Sheldon (2010) ( KS) adopt the so-called Battle-of-the-Mark-ups model developed by Layard and his co-authors (1986, 1991) to address a series of issues regarding the link between inflation and the labour market as well as the behaviour of inflation itself (average inflation level, inflation persistency and the role of lagged inflation in shaping expectations). They bring the model to the data and try to gauge whether the introduction of the new monetary policy framework has brought about any significant changes to these factors. Firms start bidding against each other for labour, and workers feel more confident in pressing wage claims [...]; higher wage rises lead to higher price rises, leading to still higher wage rises, and so on”
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