Information Content of Wages and Monetary Policy

Abstract

We examine whether it is sufficient for central banks to observe and forecast nominal variables only. Analyzing the interplay of wage‐setting unions and a central bank we show that although central banks may not gain more information by directly acquiring data about indicators of real shocks in the economy, such activities are nevertheless beneficial for central banks and yield lower social losses. Moreover, the extent of research activities by central banks should depend on the process of union formation.