The setting is a small open economy with an open sector and a sheltered sector. If the unions that operate in each sector coordinate their wage claims within the sector, the choice of monetary regime--monetary union or floating with an inflation target--affects the relative prices of tradables...

Commitment in monetary policy leads to equilibria that are superior to those from optimal discretionary policies. A number of interest-rate reaction functions and instrument rules have been proposed to implement or approximate commitment policy. We assess these rules in terms of whether they...