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Central Bank Conservatism and Labor Market Reform

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  • Jordahl, H.
  • Laseen, S.

Abstract

Hoe does central bank conservatism affect labor market reform? In this paper we examine the economic forces at work. An increase in conservation triggers two opposite effects. It reduces the inflation bias of discretionary monetary policy and hence the benefits of a reform. It also increases unemployment variability, which increases the precautionary benefits of a reform. In combination, the two effects produce a u-shaped relation between conservatism and labor market reform. An empirical investigation provides evidence consistent with this prediction.

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Bibliographic Info

Paper provided by Uppsala - Working Paper Series in its series Papers with number 1999:23.

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Length: 15 pages
Date of creation: 1999
Date of revision:
Handle: RePEc:fth:uppaal:1999:23

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Postal: UPPSALA UNIVERSITY, DEPARTMENT OF ECONOMICS, S-751 20 UPPSALA SWEDEN.
Phone: + 46 18 471 25 00
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Web page: http://www.nek.uu.se/
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Keywords: CENTRAL BANKS ; LABOUR MARKET ; UNEMPLOYMENT ; INFLATION;

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References

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  1. Juan J. Dolado & Juan F. Jimeno, . "The causes of Spanish unemployment: A structural VAR apporach," Working Papers 96-19, FEDEA.
  2. Calmfors, Lars, 1998. "Monetary Union and Precautionary Labour-Market Reform," Seminar Papers 659, Stockholm University, Institute for International Economic Studies.
  3. Bratsiotis, George & Martin, Christopher, 1999. " Stabilisation, Policy Targets and Unemployment in Imperfectly Competitive Economies," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(2), pages 241-56, June.
  4. Robert J. Barro & David B. Gordon, 1981. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
  5. Marimon, Ramon & Zilibotti, Fabrizio, 1998. "'Actual' versus 'virtual' employment in Europe Is Spain different?," European Economic Review, Elsevier, vol. 42(1), pages 123-153, January.
  6. Cukierman, A. & Lippi, F., 1998. "Central Bank Independence, Centralization of Wage Bargaining, Inflation and Unemployment - Theory and Some Evidence," Discussion Paper 1998-116, Tilburg University, Center for Economic Research.
  7. Anne C. Sibert & Alan Sutherland, . "Monetary Regimes and Labour Market Reform," Discussion Papers 97/14, Department of Economics, University of York.
  8. Calmfors, L., 1998. "Unemployment, Labour-Market Reform and Monetary Union," Papers 639, Stockholm - International Economic Studies.
  9. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
  10. 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.
  11. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
  12. Berthold, Norbert & Fehn, Rainer, 1998. "Does EMU Promote Labor-Market Reforms?," Kyklos, Wiley Blackwell, vol. 51(4), pages 509-36.
  13. Calmfors, Lars, 1998. "Unemployment, Labour-Market Reform and Monetary Union," Seminar Papers 639, Stockholm University, Institute for International Economic Studies.
  14. Calmfors, L., 1998. "Monetary Union and Precautionary Labour-Market Reform," Papers 659, Stockholm - International Economic Studies.
  15. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
  16. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
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Cited by:
  1. Jordahl, Henrik & Laseen, Stefan, 2005. "Central bank conservatism and labor market regulation," European Journal of Political Economy, Elsevier, vol. 21(2), pages 345-363, June.

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