wage, unemployment and inflation. This is done by considering a two-stage strategic interaction between a central bank (CB … wages of other unions and the reaction-function of the CB as given. In the second stage the CB picks inflation so as to … minimize the combined costs of inflation and unemployment, taking union's wage rates as given. Since unions are averse to …

in output and inflation are due to changes in potential output or to cyclical demand and cost shocks. We refer to this … ndings provide a partial explanation for the inflation of the seventies and the price stability of the nineties. 3. A … during and following periods of large changes in potential output the IP significantly affects the dynamics of inflation and …