Johansson, Åsa () (Institute for International Economic Studies, Stockholm University)
Abstract
This paper studies the interaction between time inconsistency problems in labor market policy and monetary policy. When both policies are discretionary, there is a positive inflation bias, whereas the bias in labor market programs may be either positive or negative. A commitment of labor market programs to zero increases inflation, as compared to the case when both labor market policy and monetary policy are discretionary. Delegation of labor market policy to a liberal labor market board may improve the discretionary outcome, even if labor market programs crowd out regular employment. A conservative central bank always reduces the social loss, even when monetary policy interacts with labor market policy.
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Publisher Info
Paper provided by Stockholm University, Institute for International Economic Studies in its series Seminar Papers with number
708.
Length: 40 pages Date of creation: 16 May 2002 Date of revision: Handle: RePEc:hhs:iiessp:0708
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