The Political Economy of Inflation, Labour Market Distortions, and Central Bank Independence
The Political Economy of Inflation, Labour Market Distortions, and Central Bank Independence
Using the citizen–candidate model we study the government’s choice of institutions for the labour market and the central bank and derive the implications for inflation and employment. We derive conditions for the existence of equilibria in which the labour market is distorted and the central bank is dependent or independent under a range of conditions affecting central bank dependence, the post–election cycle in inflation and employment and inflation bias.
Our results imply that average inflation and inflation variability are lower under an independent central bank whereas employment variability can be lower or higher, consistent with evidence for OECD countries.
43-64
Herrendorf, Berthold
3cf68f14-808a-42a7-9642-85b757775096
Neumann, Manfred J.M.
c552ec83-a322-4b8e-8508-731a3a6b9f53
2003
Herrendorf, Berthold
3cf68f14-808a-42a7-9642-85b757775096
Neumann, Manfred J.M.
c552ec83-a322-4b8e-8508-731a3a6b9f53
Herrendorf, Berthold and Neumann, Manfred J.M.
(2003)
The Political Economy of Inflation, Labour Market Distortions, and Central Bank Independence.
Economic Journal, 113 (484), .
(doi:10.1111/1468-0297.00088).
Abstract
Using the citizen–candidate model we study the government’s choice of institutions for the labour market and the central bank and derive the implications for inflation and employment. We derive conditions for the existence of equilibria in which the labour market is distorted and the central bank is dependent or independent under a range of conditions affecting central bank dependence, the post–election cycle in inflation and employment and inflation bias.
Our results imply that average inflation and inflation variability are lower under an independent central bank whereas employment variability can be lower or higher, consistent with evidence for OECD countries.
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Published date: 2003
Organisations:
Economics
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Local EPrints ID: 33446
URI: http://eprints.soton.ac.uk/id/eprint/33446
ISSN: 0013-0133
PURE UUID: 5ec9cbfc-fd16-436e-8aff-0e9c5e4b37e7
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Date deposited: 16 May 2006
Last modified: 15 Mar 2024 07:44
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Author:
Berthold Herrendorf
Author:
Manfred J.M. Neumann
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