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Abstract

This paper presents a simple model of policy coordination in line with the New Open Economy Macroeconomics literature. I extent the analysis on non-cooperative toward cooperative solutions by incorporating a collective wage bargaining system and conservative central banks. It turns out that previous results on international monetary policy cooperation are modified such that cooperation is welfare improving. The finding in the model relies on wage setters’ perceptions about affecting monetary policy. It is shown that under cooperation wage setters perceive a tighter monetary policy, thereby inducing wage restraints.

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