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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.

Suggested Citation

  • Jordahl, Henrik & Laséen, Stefan, 1999. "Central Bank Conservatism and Labor Market Reform," Working Paper Series 1999:23, Uppsala University, Department of Economics.
    • Handle: RePEc:hhs:uunewp:1999_023
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    References listed on IDEAS

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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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    More about this item

    Keywords

    Central bank independence; labor market reform; credibility; flexibility; inflation; unemployment; rigidities;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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