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Mixed signals: central bank independence, coordinated wage bargaining, and European Monetary Union

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  • Hall, Peter A.
  • Franzese, Robert J.
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    Abstract

    Plans for European Monetary Union are based on the conventional postulate that increasing the independence of the central bank can reduce inflation without any real economic effects. However, the theoretical and empirical bases for this claim rest onmodels of the economy that make unrealistic information assumptions and omitinstitutional variables other than the central bank. When the signaling problems between the central bank and other actors in the political economy are considered,we find that the character of wage bargaining conditions the impact of central bankindependence by rendering the signals between the bank and the bargainers moreor less effective. Greater independence can reduce inflation without majoremployment effects where bargaining is coordinated, but it brings higher levels ofunemployment where bargaining is uncoordinated. Thus, currency unions like the EMU may require higher levels of unemployment to control inflation than their proponents envisage; they will have costs as well as benefits, costs which will bedistributed unevenly among and within the member nations based on the changesinduced in the status of the bank and of wage coordination -- Die Konzepte für die Europäische Währungsunion basieren auf dem allgemeinvertretenen Postulat, daß mit größerer Unabhängigkeit der Zentralbank die Inflationohne reale ökonomische Effekte verringert werden kann. Allerdings beruht die theoretische wie empirische Basis für diesen Anspruch auf Modellvorstellungen einer Volkswirtschaft, die auf unrealistischen Annahmen der Bedeutung von Informationen beruhen und institutionelle Variable - mit Ausnahme der Zentralbank - außer acht lassen. Wird allerdings die wechselseitige Wahrnehmung und Interpretation vonInformationen („signaling problems“) zwischen Zentralbank und den anderenAkteuren in der politischen Ökonomie in die Analyse einbezogen, dann ist festzustellen, daß die Art der Lohnfindung die Intensität der Auswirkungen derZentralbankunabhängigkeit beeinflußt je nachdem, wie wirksam die wechselseitige Wahrnehmung und Interpretation von Informationen zwischen der Zentralbank und den Tarifpartnern vermittelt ist.Im Falle koordinierter Tarifverhandlungen kann eine größere Unabhängigkeit derZentralbank die Inflation in der Tat ohne größere Beschäftigungseffekte vermindern,im Falle unkoordinierter Tarifverhandlungen führt dies allerdings zu einem höherenNiveau der Arbeitslosigkeit. Daraus leitet sich die Überlegung ab, daß eineWährungsunion vom Typ „Europäische Währungsunion“ ein höheres Maß an Arbeitslosigkeit erfordert, um die Inflation unter Kontrolle zu halten, als es ihre Befürworter erwarten. Bei den sich dann einstellenden Vor- und Nachteilen werden die Nachteile zwischen und innerhalb der Mitgliedstaaten ungleich verteilt sein, abhängig von dem letztendlich verwirklichten Grad der Unabhängigkeit derZentralbank und der Form der Lohnfindung.

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    Bibliographic Info

    Paper provided by Social Science Research Center Berlin (WZB) in its series Discussion Papers, Research Unit: Economic Change and Employment with number FS I 97-307.

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    Date of creation: 1997
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    Handle: RePEc:zbw:wzbece:fsi97307

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    1. Havrilesky, Thomas & Granato, James, 1993. " Determinants of Inflationary Performance: Corporatist Structures vs. Central Bank Autonomy," Public Choice, Springer, Springer, vol. 76(3), pages 249-61, July.
    2. Lohmann, Susanne, 1992. "Optimal Commitment in Monetary Policy: Credibility versus Flexibility," American Economic Review, American Economic Association, American Economic Association, vol. 82(1), pages 273-86, March.
    3. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 100(4), pages 1169-89, November.
    4. Kenen,Peter B., 1995. "Economic and Monetary Union in Europe," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521558839.
    5. Beck, Nathaniel & Katz, Jonathan N. & Alvarez, Michael R. & Garrett, Geoffrey & Lange, Peter, 1993. "Government Partisanship, Labor Organization and Macroeconomic Performance: A Corrigendum," Working Papers, California Institute of Technology, Division of the Humanities and Social Sciences 848, California Institute of Technology, Division of the Humanities and Social Sciences.
    6. Fratianni, Michele & von Hagen, Juergen, 1990. "The European Monetary System ten years after," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 32(1), pages 173-241, January.
    7. Posen, Adam, 1998. "Central Bank Independence and Disinflationary Credibility: A Missing Link?," Oxford Economic Papers, Oxford University Press, vol. 50(3), pages 335-59, July.
    8. Alex Cukierman, 1993. "Central Bank Independence, Political Influence and Macroeconomic Performance: a Survey of Recent Development," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 30(91), pages 271-292.
    9. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 42(2), pages 169-90, April.
    10. Bleaney, Michael, 1996. "Central Bank Independence, Wage-Bargaining Structure, and Macroeconomic Performance in OECD Countries," Oxford Economic Papers, Oxford University Press, vol. 48(1), pages 20-38, January.
    11. Soskice, David, 1990. "Wage Determination: The Changing Role of Institutions in Advanced Industrialized Countries," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 6(4), pages 36-61, Winter.
    12. Taylor, John B., 1983. "`Rules, discretion and reputation in a model of monetary policy' by Robert J. Barro and David B. Gordon," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(1), pages 123-125.
    13. Fratianni, M. & Von Hagen, J. & Waller, C., 1992. "The Maastricht Way to EMU," Princeton Studies in International Economics, International Economics Section, Departement of Economics Princeton University, 187, International Economics Section, Departement of Economics Princeton University,.
    14. Alex Cukierman, 1992. "Central Bank Strategy, Credibility, and Independence: Theory and Evidence," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031981, December.
    15. Locke, Richard M., 1959- & Jacoby, Wade., 1995. "The dilemmas of diffusion : institutional transfer and the remaking of vocational training practices in Eastern Germany," Working papers 3846-95., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    16. Robert J. Barro & David B. Gordon, 1983. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc.
    17. Alberto Alesina, 1988. "Macroeconomics and Politics," NBER Chapters, in: NBER Macroeconomics Annual 1988, Volume 3, pages 13-62 National Bureau of Economic Research, Inc.
    18. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 25(2), pages 151-62, May.
    19. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(3), pages 473-91, June.
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    Cited by:
    1. O'Reilly, Jacqueline & Spee, Claudia, 1997. "Regulating work and welfare of the future: Towards a new gender contract?," Discussion Papers, Research Unit: Labor Market Policy and Employment FS I 97-207, Social Science Research Center Berlin (WZB).
    2. Hein, Eckhard, 1999. "Zentralbank-Politik und makroökonomische Ergebnisse: eine sozio-institutionelle Interpretation
      [Central Bank Policies and Macroeconomic Results: A Socio-institutional Interpretation]
      ," MPRA Paper 18881, University Library of Munich, Germany.

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