Wage‐setting coordination in a small open economy*

This paper studies wage-setting coordination in a two-sector, open economy dynamic stochastic general equilibrium (DSGE) model. Two large sectoral unions anticipate the effects of their wage demands on aggregate variables. In an economy, there are externalities that can take into account to increase welfare, but strategic interaction between tends erode this gain. When takes place through norm set by either sectors, minimises interaction. However, norms create welfares losses since sector-specific adjustment is required make efficient shocks. article protected copyright. All rights reserved.