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The Political Economy of Inflation, Labour Market Distortions and Central Bank Independence

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Author Info
Berthold Herrendorf (Universidad Carlos III de Madrid, University of Southampton and CEPR)
Manfred J.M. Neumann (Universitat Bonn)

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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. Copyright Royal Economic Society 2003.

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Publisher Info
Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 113 (2003)
Issue (Month): 484 (January)
Pages: 43-64
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Handle: RePEc:ecj:econjl:v:113:y:2003:i:484:p:43-64

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Arnab Bhattacharjee & Sean Holly, 2004. "Inflation Targeting, committee Decision Making and Uncertainty: The case of the Bank of England's MPC," Money Macro and Finance (MMF) Research Group Conference 2004 63, Money Macro and Finance Research Group. [Downloadable!]
    Other versions:
  2. Ullrich, Katrin, 2003. "Unabhängigkeit und Verantwortlichkeit der Europäischen Zentralbank," ZEW Discussion Papers 03-65, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  3. Giovanni Di Bartolomeo & Debora Di Gioacchino, 2005. "Fiscal-Monetary Policy Coordination And Debt Management: A Two Stage Dynamic Analysis," Macroeconomics 0504024, EconWPA. [Downloadable!]
    Other versions:
  4. Alessandro Missale & Elisabetta Falcetti, . "Public Debt Indexation and Denomination with and Indipendent Central Bank," Working Papers 169, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
    Other versions:
  5. Helge Berger, 2006. "Optimal Central Bank Design: Benchmarks for the ECB," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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