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Central Bank Independence and Wage Bargaining Structure - Empirical Evidence

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  • Kilponen, Juha

    ()
    (Bank of Finland Research)

Abstract

This paper studies the relationship between central bank independence, wage bargaining structure and macroeconomic performance in OECD countries. A cross-sectional time-series (TSCS) model for inflation, nominal wage growth and unemployment for the period 1973–1996 is estimated using different and updated measures of central bank independence. The importance of the price stability objective in the central bank statute is used as a proxy for the degree of conservativeness of the central bank. A recently published data set on wage bargaining structure is used, and a distinction is made between coordination of wage bargaining and formal centralization. A new measure of union power is constructed, which combines formal centralization and union density. The implications of the large differences that can be seen between coverage and unionization rates in some countries are briefly discussed. Two important results emerge. First, the central bank's political independence and personnel independence contribute most importantly to a successful inflation policy. Second, a high level of coordination contributes to moderate inflation rates and unemployment, while union monopoly power tends to increase inflation.

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File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/9909.pdf
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Bibliographic Info

Paper provided by Bank of Finland in its series Research Discussion Papers with number 9/1999.

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Length: 45 pages
Date of creation: 07 Dec 1999
Date of revision:
Handle: RePEc:hhs:bofrdp:1999_009

Contact details of provider:
Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/
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Related research

Keywords: central bank independence; wage bargaining; monetary policy;

References

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  1. Alesina, Alberto & Tabellini, Guido, 1988. "Credibility and politics," European Economic Review, Elsevier, vol. 32(2-3), pages 542-550, March.
  2. Lindbeck, A. & Snower, D.J., 1989. "Demand- And Supply-Side Policies And Unemployment: Policy Implications Of The Insider-Outside Approach," Papers 439, Stockholm - International Economic Studies.
  3. Cukierman, A. & Lippi, F., 1998. "Central Bank Independence, Centralization of Wage Bargaining, Inflation and Unemployment: Theory and Evidence," Papers 332, Banca Italia - Servizio di Studi.
  4. Guy Debelle & Stanley Fischer, 1994. "How independent should a central bank be?," Working Papers in Applied Economic Theory 94-05, Federal Reserve Bank of San Francisco.
  5. Bennett T. McCallum, 1996. "Inflation Targeting in Canada, New Zealand, Sweden, the United Kingdom, and in General," NBER Working Papers 5579, National Bureau of Economic Research, Inc.
  6. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  7. Eijffinger, S-C-W & de Haan, J, 1996. "The Political Economy of Central-Bank Independence," Princeton Studies in International Economics 19, International Economics Section, Departement of Economics Princeton University,.
  8. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 151-62, May.
  9. Bleaney, Michael, 1996. "Central Bank Independence, Wage-Bargaining Structure, and Macroeconomic Performance in OECD Countries," Oxford Economic Papers, Oxford University Press, vol. 48(1), pages 20-38, January.
  10. Cottarelli, C. & Giannini, C., 1997. "Credibility without Rules? Monetary Frameworks in the Post-Bretton Woods Era," Papers 312, Banca Italia - Servizio di Studi.
  11. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, September.
  12. Skott, Peter, 1997. "Stagflationary Consequences of Prudent Monetary Policy in a Unionized Economy," Oxford Economic Papers, Oxford University Press, vol. 49(4), pages 609-22, October.
  13. Calmfors, Lars & Horn, Henrik, 1985. " Classical Unemployment, Accommodation Policies and Adjustment of Real Wages," Scandinavian Journal of Economics, Wiley Blackwell, vol. 87(2), pages 234-61.
  14. Michael Bruno & Jeffrey D. Sachs, 1985. "Economics of Worldwide Stagflation," NBER Books, National Bureau of Economic Research, Inc, number brun85-1, octubre-d.
  15. Hafiz A. Akhand, 1992. "Policy Credibility and Inflation in a Wage-Setting Game," Canadian Journal of Economics, Canadian Economics Association, vol. 25(2), pages 407-19, May.
  16. Eijffinger, S.C.W., 1993. "Central bank independence in twelve industrial countries," Open Access publications from Tilburg University urn:nbn:nl:ui:12-152908, Tilburg University.
  17. Calmfors, Lars, 1982. " Employment Policies, Wage Formation and Trade Union Behavior in a Small Open Economy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 84(2), pages 345-73.
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Citations

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Cited by:
  1. Alessandra Del Boca & Michele Fratianni & Franco Spinelli & Carmine Trecroci, 2009. "Wage Bargaining Coordination and the Phillips Curve in Italy," Working Papers 0901, University of Brescia, Department of Economics.
  2. Bernard Laurens & Marco Arnone & Jean-François Segalotto, 2006. "The Measurement of Central Bank Autonomy," IMF Working Papers 06/227, International Monetary Fund.
  3. Karl Pichelmann, 2001. "Monitoring Wage Developments in EMU," Empirica, Springer, vol. 28(4), pages 353-373, December.

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