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Unions, fiscal policy and central bank transparency

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Author Info
Giuseppe Ciccarone (Department of Public Economics, University of Rome 'La Sapienza')
Giovanni Di Bartolomeo (Department of Public Economics, University of Rome 'La Sapienza')
Enrico Marchetti (Department of Public Economics, University of Rome 'La Sapienza')

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Abstract

In a unionised economy with supply-side fiscal policy transparency has two contrasting effects on economic performance. Uncertainty on central bank's preferences induces unions to reduce wages but also produces a fully-anticipated expansionary fiscal policy which favours the setting of higher wages. Even if the net effect depends on the preference parameters of public entities and on the effectiveness of fiscal policy on aggregate supply: (i) the positive effects of opacity in unionised economies without fiscal policy are confirmed when the central bank is populist; (ii) if it is instead sufficiently conservative, transparency reduces inflation and the output gap, but at the cost of higher macroeconomic volatility.

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Paper provided by EconWPA in its series Macroeconomics with number 0508004.

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Length: 21 pages
Date of creation: 05 Aug 2005
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Handle: RePEc:wpa:wuwpma:0508004

Note: Type of Document - pdf; pages: 21
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Related research
Keywords: Central bank transparency; Inflation; uncertainty;

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Find related papers by JEL classification:
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Giuseppe Ciccarone & Enrico Marchetti, 2008. "Revisiting the role of multiplicative uncertainty in a model without inflationary bias," Working Papers 110, Sapienza University of Rome, Department of Public Economics. [Downloadable!]
    Other versions:
  2. Dai, Meixing & Sidiropoulos, Moïse, 2009. "Public investment, distortionary taxes and monetary policy transparency," MPRA Paper 15858, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  3. Dai, Meixing & Sidiropoulos, Moise, 2008. "Fiscal Policy in a Monetary Union in the Presence of Uncertainty about the Central Bank Preferences," MPRA Paper 13907, University Library of Munich, Germany, revised Mar 2009. [Downloadable!]
    Other versions:
  4. Giuseppe Ciccarone & Enrico Marchetti, 2008. "Linear Contracts, Common Agency and Central Bank Preference Uncertainty," Working Papers 115, Sapienza University of Rome, Department of Public Economics. [Downloadable!]
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