Why the ECB Should be Ultra-Liberal
AbstractThe 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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Bibliographic InfoPaper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 2000-10.
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Monetary institutions; endogenous labour market policy; lobbying labor union;
Find related papers by JEL classification:
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
- H19 - Public Economics - - Structure and Scope of Government - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-10-05 (All new papers)
- NEP-EEC-2000-10-11 (European Economics)
- NEP-MON-2000-10-05 (Monetary Economics)
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