Incentives for labour union cooperation in a monetary  union

The study examines the incentives of two monopoly labour unions for international cooperation under floating exchange rates and in a monetary union.The framework consists of a two-country model of international spillovers, where the impact through the real exchange rate is of central importance.The labour unions care about real wages and employment but not about inflation.The main results of the model are: 1) Irrespective of the monetary regime, cooperation is always beneficial for the labour unions; however, the non-cooperative solution is the one-shot game Nash equilibrium. 2) At a given level of employment, inflation is higher in the monetary union than in the floating rate regime. 3) In a floating rate regime, cooperation is more advantageous in case of an accommodative than a conservative central banker.In a monetary union, such an unambiguous result does not emerge.And finally 4) in a repeated game, the highest discount rate to maintain cooperation is very high and is not dependent on the monetary regime. Key words: monetary policy, labour unions, EMU