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Economic Reforms and the Indirect Role of Monetary Policy

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  • Andrea Beccarini
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    Abstract

    Due to pressure from some lobbies, the government is unwilling to perform structural reforms. The probability of its reelection depends, however, on a positive business cycle. The central bank may create surprise deflation even though it maximizes the public’s utility function and even if it faces a rational market. This may explain why the ECB, but not the US FED, is found to be unaffected by the inflation bias.

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    File URL: http://www1.wiwi.uni-muenster.de/cqe/forschung/publikationen/cqe-working-papers/CQE_WP_25_2012.pdf
    File Function: Version of October, 2012
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    Bibliographic Info

    Paper provided by Center for Quantitative Economics (CQE), University of Muenster in its series CQE Working Papers with number 2512.

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    Length: 6 pages
    Date of creation: Oct 2012
    Date of revision:
    Handle: RePEc:cqe:wpaper:2512

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    Related research

    Keywords: Political Business Cycles; Time Inconsistency of Monetary Policy;

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    1. Kenneth Rogoff & Anne Sibert, 1988. "Elections and Macroeconomic Policy Cycles," NBER Working Papers 1838, National Bureau of Economic Research, Inc.
    2. Robert J. Barro & David B. Gordon, 1983. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
    3. Fratianni, Michele & von Hagen, Jurgen & Waller, Christopher J, 1997. "Central Banking as a Political Principal-Agent Problem," Economic Inquiry, Western Economic Association International, vol. 35(2), pages 378-93, April.
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