Template-type: ReDIF-Paper 1.0
Author-Name: Alfonso Palacio Vera 
Author-Workplace-Name: Departamento de Economía Aplicada III (Política Económica). Universidad Complutense de Madrid.
Author-Workplace-Homepage: https://www.ucm.es//departamento-de-economia-aplicada,-publica-y-politica
Title: Money wage rigidity, monopoly power and hysteresis
Abstract: The literature that addresses the effects on the level of aggregate demand of changes in the degree of monopoly typically 
	assumes away the existence of an “inflation barrier” and an inflationtargeting central bank. The presence of these two 
	institutional factors entails that any aggregate demand change brought about by changes in the functional distribution of 
	income will tend to be offset by changes in real interest rates. We postulate a simple macroeconomic model for a closed 
	economy with a government sector and hypothesize that a change in the average mark up affects the inflation rate, the 
	“inflation-barrier” and aggregate demand. The model allows for the analysis of the effects on the employment rate of demand 
	and supply shocks when the economy exhibits asymmetric inflation dynamics (AID) and hysteresis effects. Among other results we 
	find that, if the economy exhibits AID and hysteresis, the effect on the employment rate of a change in the mark up is likely 
	to be either ineffectual or counterproductive even if the associated demand shock is expansionary. We also show that an 
	inadequate functional distribution of income may lead to the occurrence of an aggregate demand deficiency problem.
Classification-JEL: B50, E12, E24, E50
Keywords: Neutral interest rate, degree of monopoly, asymmetric inflation dynamics, zero lower bound, hysteresis, reversibility
Length: 38 pages
Creation-Date: 2008 
Number: 08-02
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doctra08-02.txt
File-URL: https://eprints.ucm.es/id/eprint/8181/1/0802.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doctra:08-02