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Central Bank Conservatism and Labor Market Reform

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  • Jordahl, Henrik

    (Department of Economics)

  • Laséen, Stefan

    ()
    (Department of Economics)

Abstract

How does central bank conservatism affect labor market reform? In this paper we examine the economic forces at work. An increase in conservatism 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 University, Department of Economics in its series Working Paper Series with number 1999:23.

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Length: 26 pages
Date of creation: 01 Dec 1999
Date of revision:
Publication status: Published in European Journal of Political Economy, 2005, pages 345-363.
Handle: RePEc:hhs:uunewp:1999_023

Contact details of provider:
Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
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Web page: http://www.nek.uu.se/
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Keywords: Central bank independence; labor market reform; credibility; flexibility; inflation; unemployment; rigidities;

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  1. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
  2. 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.
  3. 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.
  4. 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.
  5. Cukierman, Alex & Lippi, Francesco, 1999. "Central bank independence, centralization of wage bargaining, inflation and unemployment:: Theory and some evidence," European Economic Review, Elsevier, vol. 43(7), pages 1395-1434, June.
  6. 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.
  7. Calmfors, L., 1998. "Unemployment, Labour-Market Reform and Monetary Union," Papers 639, Stockholm - International Economic Studies.
  8. Marimon, Ramon & Zilibotti, Fabrizio, 1996. "'Actual' versus 'Virtual' Employment in Europe: Is Spain Different?," CEPR Discussion Papers 1427, C.E.P.R. Discussion Papers.
  9. Calmfors, Lars, 1998. "Monetary Union and Precautionary Labour-Market Reform," Seminar Papers 659, Stockholm University, Institute for International Economic Studies.
  10. Eijffinger, Sylvester & Schaling, Eric & Hoeberichts, Marco, 1998. "Central bank independence: A sensitivity analysis," European Journal of Political Economy, Elsevier, vol. 14(1), pages 73-88, February.
  11. Calmfors, L., 1998. "Monetary Union and Precautionary Labour-Market Reform," Papers 659, Stockholm - International Economic Studies.
  12. Berthold, Norbert & Fehn, Rainer, 1998. "Does EMU Promote Labor-Market Reforms?," Kyklos, Wiley Blackwell, vol. 51(4), pages 509-36.
  13. Anne C. Sibert & Alan Sutherland, . "Monetary Regimes and Labour Market Reform," Discussion Papers 97/14, Department of Economics, University of York.
  14. 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.
  15. Dolado, Juan J. & Jimeno, Juan F., 1997. "The causes of Spanish unemployment: A structural VAR approach," European Economic Review, Elsevier, vol. 41(7), pages 1281-1307, July.
  16. Calmfors, Lars, 1998. "Unemployment, Labour-Market Reform and Monetary Union," Seminar Papers 639, Stockholm University, Institute for International Economic Studies.
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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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