Advanced Search
MyIDEAS: Login to save this paper or follow this series

A Non-normative Theory of Inflation and Central Bank Independence

Contents:

Author Info

  • Herrendorf, Berthold
  • Manfred J. M. Neumann

Abstract

We study monetary policy when the labor-market insiders set the wage so that the outsiders are involuntarily unemployed. If the insiders are in the majority, the representative insider will be the median voter. Consequently, neither an independent nor a government-dependent central banker is found to produce a systematic inflation bias, albeit equilibrium employment is too low from a social welfare point of view. The disadvantage of government-dependence is that the central bank takes the government's reelection prospects into account and creates a political cycle in inflation. Our theory is consistent with the main stylized facts that a higher degreee of central bank independence decreases average inflation and inflation variability, but does not affect output variability.

Download Info

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Bibliographic Info

Paper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number 400.

as in new window
Length: pages
Date of creation: Jan 1997
Date of revision:
Handle: RePEc:bon:bonsfb:400

Contact details of provider:
Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
Fax: +49 228 73 6884
Web page: http://www.bgse.uni-bonn.de

Related research

Keywords: central bank independence; inflation bias; insiders; median voter; political cycles.;

Other versions of this item:

Find related papers by JEL classification:

References

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.:
as in new window
  1. Athanasios Orphanides & Volker Wieland, 1998. "Price stability and monetary policy effectiveness when nominal interest rates are bounded at zero," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 1998-35, Board of Governors of the Federal Reserve System (U.S.).
  2. Persson, Torsten & Roland, Gerard & Tabellini, Guido, 1997. "Separation of powers and accountability: Towards a formal approach to comparative politics," Seminar Papers, Stockholm University, Institute for International Economic Studies 612, Stockholm University, Institute for International Economic Studies.
  3. Richard Clarida & Mark Gertler, 1996. "How the Bundesbank Conducts Monetary Policy," NBER Working Papers 5581, National Bureau of Economic Research, Inc.
  4. Svensson, L.E.O., 1995. "Optimal Inflation Targets, 'Conservative' Central Banks, and Linear Inflation Contracts," Papers, Stockholm - International Economic Studies 595, Stockholm - International Economic Studies.
  5. Jon Faust, 1992. "Whom can we trust to run the Fed? Theoretical support for the founders' views," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 429, Board of Governors of the Federal Reserve System (U.S.).
  6. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 100(4), pages 1169-89, November.
  7. Fratianni, Michele & von Hagen, Jurgen & Waller, Christopher J, 1997. "Central Banking as a Political Principal-Agent Problem," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 35(2), pages 378-93, April.
  8. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 25(2), pages 151-62, May.
  9. José Angulo & N. Cressie & C. Wikle & P. Soidán & M. Bande & C. Glasbey & John Kent & Ana Militino & Michael Stein, 1998. "Discussion," TEST: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer, Springer, vol. 7(2), pages 283-285, December.
  10. Herrendorf, Berthold & Lockwood, Ben, 1996. "Rogoff's Conservative Central Banker Restored," The Warwick Economics Research Paper Series (TWERPS) 450, University of Warwick, Department of Economics.
  11. Grier, Kevin B., 1991. "Congressional influence on U.S. monetary policy : An empirical test," Journal of Monetary Economics, Elsevier, Elsevier, vol. 28(2), pages 201-220, October.
  12. Manfred Neumann, 1991. "Precommitment by central bank independence," Open Economies Review, Springer, Springer, vol. 2(2), pages 95-112, June.
  13. Eijffinger, S.C.W. & Schaling, E. & Hoeberichts, M.M., 1997. "Central bank independence: A sensitivity analysis," Open Access publications from Tilburg University urn:nbn:nl:ui:12-74413, Tilburg University.
  14. Unknown, 1998. "Discussion," Journal of Economic Psychology, Elsevier, Elsevier, vol. 19(5), pages 619-643, October.
  15. Berger, Helge & Woitek, Ulrich, 1997. "How opportunistic are partisan German central bankers: Evidence on the Vaubel hypothesis," European Journal of Political Economy, Elsevier, vol. 13(4), pages 807-821, December.
  16. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, American Economic Association, vol. 77(4), pages 647-66, September.
  17. Unknown, 1998. "Discussion," Journal of Economic Psychology, Elsevier, Elsevier, vol. 19(5), pages 645-650, October.
  18. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262522608, December.
  19. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," NBER Working Papers 1950, National Bureau of Economic Research, Inc.
  20. Cukierman, Alex & Edwards, Sebastian & Tabellini, Guido, 1992. "Seigniorage and Political Instability," American Economic Review, American Economic Association, American Economic Association, vol. 82(3), pages 537-55, June.
  21. Unknown, 1998. "Discussion," Journal of Economic Psychology, Elsevier, Elsevier, vol. 19(5), pages 651-652, October.
  22. Vaubel, Roland, 1997. "The bureaucratic and partisan behavior of independent central banks: German and international evidence," European Journal of Political Economy, Elsevier, vol. 13(2), pages 201-224, May.
  23. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, American Economic Association, vol. 85(1), pages 150-67, March.
  24. Kenneth Rogoff & Anne Sibert, 1986. "Elections and Macroeconomic Policy Cycles," NBER Working Papers 1838, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Berlemann, Michael & Markwardt, Gunther, 2003. "Partisan cycles and pre-electoral uncertainty," Dresden Discussion Paper Series in Economics 01/03, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
  2. Herrendorf, Berthold & Neumann, Manfred J.M., 1998. "The Political Economy of Inflation, Labour Market Distortions and Central Bank Independence," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1969, C.E.P.R. Discussion Papers.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:bon:bonsfb:400. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (BGSE Office).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.