Central bank inflation contracts and strategic wage setting in a multiunion economy

A shared feature of models used to investigate the welfare-enhancing potential of a central bank inflation contract is their stochastic nature: central to the benefits conferred by such a contract is the presence of supply shocks. In constructing a framework where wages are set strategically by a number of nonatomistic, inflation-averse unions, this note identifies circumstances in which an inflation contract improves macroeconomic outcomes even in the absence of supply shocks. (c) 2004 Elsevier B.V. All rights reserved.