Prospect of inflationary wage settlements, Business Law and Ethics

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Prospect of inflationary wage settlements

The same logic can be applied to various supply side policies. Take, for example, the prospect of inflationary wage settlements. If wage bargaining that pushes the Phillips' curve outwards will on exert pressures for the bank to accommodate the ill effects of the resulting inflation. Interestingly, this can be interpreted as a problem of collective action if the credibility of monetary policy in a federal union is viewed as a public good. The good being the club good, is non-excludable and non-rivalrous.

Like free riders problems associated with conventional public goods, the same problem can be seen here too. But if majority of states start becoming free riders, the aggregate stances of other policies will become inconsistent with the objectives of monetary policy, thus erode the credibility of the central bank. The end goal of economic policy coordination, in this instance, is to promote consistency between national policies and the Community's objective of monetary credibility.

 


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