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The Impact of Central Bank Independence and Union Concentration on Macroeconomic Perfromance in the Presence of Aggregate Supply Shocks. Evidence from 10 OECD Countries (1971-85)

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  • Chou, Y.K.
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    Abstract

    In this paper, we use panel data from 1971 to 1985 to test the hypothesis that differences in monetary and wage institutions can explain a significant fraction of the variations in the macroeconomic performance of 10 OECD countries following the OPEC shocks of 1973-74 and 1979-80. After controlling for central bank independence, we detect a hump-shaped relationship between union density and inflation, and a negative relationship between union concentration and inflation. These findings are robust to the use of different estimators and across various assumptions on the structure of error terms. The impact of central bank independence and union variables on unemployment is more ambiguous, and is sensitive to the inclusion of interactions between these variables. Interesting results are obtained when we split out sample, first by the degree of central bank independence, and then by union concentration.

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    Bibliographic Info

    Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 805.

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    Length: 39 pages
    Date of creation: 2001
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    Handle: RePEc:mlb:wpaper:805

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    Related research

    Keywords: Collective bargaining; central bank independence; inflation; unemployment;

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    References

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    1. 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.
    2. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, September.
    3. Marta Campillo & Jeffrey A. Miron, 1997. "Why Does Inflation Differ across Countries?," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 335-362 National Bureau of Economic Research, Inc.
    4. Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," World Bank Economic Review, World Bank Group, vol. 6(3), pages 353-98, September.
    5. Hsiao,Cheng, 2003. "Analysis of Panel Data," Cambridge Books, Cambridge University Press, number 9780521522717, April.
    6. Cubitt, Robin P, 1995. " Corporatism, Monetary Policy and Macroeconomic Performance: A Simple Game Theoretic Analysis," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(2), pages 245-59, June.
    7. Coricelli, Fabrizio & Cukierman, Alex & Dalmazzo, Alberto, 2001. "Economic Performance and Stabilization Policy in a Monetary Union with Imperfect Labour and Goods Markets," CEPR Discussion Papers 2745, C.E.P.R. Discussion Papers.
    8. Soskice, David, 1990. "Wage Determination: The Changing Role of Institutions in Advanced Industrialized Countries," Oxford Review of Economic Policy, Oxford University Press, vol. 6(4), pages 36-61, Winter.
    9. Bean, Charles R., 1994. "European unemployment: A retrospective," European Economic Review, Elsevier, vol. 38(3-4), pages 523-534, April.
    10. Chou, Y.K., 2000. "The Effect of Collective Bargaining and Central Bank Independence on Inflation and Unemployment: Evidence From the OECD," Department of Economics - Working Papers Series 770, The University of Melbourne.
    11. Coricelli, Fabrizio & Cukierman, Alex & Dalmazzo, Alberto, 2000. "Monetary Institutions, Monopolistic Competition, Unionized Labour Markets And Economic Performance," CEPR Discussion Papers 2407, C.E.P.R. Discussion Papers.
    12. 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.
    13. Newell, A. & Symons, J. S. V., 1987. "Corporatism, laissez-faire and the rise in unemployment," European Economic Review, Elsevier, vol. 31(3), pages 567-601, April.
    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.
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