Title : The (Ir)relevance of Limited Asset Market Participation for Monetary Policy: The Role of Union Wage-Setting Structures
Author(s) : Xakousti Chrysanthopoulou, Moïse Sidiropoulos
Abstract : This paper revisits the debate on whether limited asset market participation (LAMP) is relevant for the design of monetary policy. While LAMP can substantially alter the monetary transmission mechanism - potentially reinforcing or reversing the contractionary demand effects of interest rate increases and challenging standard policy prescriptions - its importance depends critically on labor market institutions. We develop a New Keynesian DSGE model with LAMP that incorporates sector-specific labor unions whose wage-setting behavior accounts for broader macroeconomic conditions. The analysis shows that when wage bargaining is sufficiently centralized, particularly under monopoly union structures, LAMP becomes largely irrelevant for monetary policy design, and the Taylor Principle once again ensures equilibrium determinacy. These findings highlight the structure of wage bargaining as a key determinant of how asset market participation shapes the effectiveness and conduct of monetary policy.
Key-words : Limited asset market participation; unions; monetary policy; Taylor principle; determinacy; centralized wage setting
JEL Classification : E52; E58; E44; E24
