Loops Learning and the Phillips Curve

The chapter presents a model somehow inspired to Tarantelli. It first shows how important the value of the parameters reflecting nominal rigidities and industrial relations can be for the dynamics of the system. The indexation system has a certain influence on the former, in line with Tarantelli’s intuition and suggestion of a reduction in the sensitivity of nominal wages to past inflation as a disinflationary measure. In addition, industrial relations can influence the dynamics of the system through their influence on expectations and learning. In particular, centralisation of bargaining, together with other conditions, can make the business cycle less pronounced or even disappear.