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Why the ECB Should be Ultra-Liberal

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  • Rasmus Hoejbjerg Jacobsen

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    (Department of Economics, University of Aarhus, Denmark)

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    Abstract

    The statute of the ECB states that its primary target should be to maintain price stability. The theoretical foundation behind this target is that of a socially optimal conservative central banker. We challenge the robustness of this result in a model with endogenous labor market policy, decided upon by a politically motivated government. In this model, the socially optimal choice of central banker is an ultra-liberal, who eliminates both inflation and unemployment and removes the political distortion. Somewhat paradoxically, the labor union supports an ultra-conservative central banker, because this means a more generous labor market policy.

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    File URL: ftp://ftp.econ.au.dk/afn/wp/00/wp00_10.pdf
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    Bibliographic Info

    Paper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 2000-10.

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    Length: 20
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    Handle: RePEc:aah:aarhec:2000-10

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    Web page: http://www.econ.au.dk/afn/

    Related research

    Keywords: Monetary institutions; endogenous labour market policy; lobbying labor union;

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