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Unions, Fiscal Policy And Central Bank Transparency


In a unionized economy with endogenous fiscal policy central bank transparency has two contrasting effects on wages, the relative strength of which determines the macroeconomic performance. This finding allows us to demonstrate that (i) if the central bank is populist the effect of transparency is negative, and (ii) if policy makers are sufficiently conservative and the government is active, transparency decreases inflation and unemployment, but opposite results apply if a populist government faces a tight fiscal constraint. Macroeconomic volatility disappears with full transparency and increases, in general, with opacity, but the relationship is hump-shaped when the central bank is strongly populist. Copyright © 2007 The Authors; Journal compilation © 2007 Blackwell Publishing Ltd and The University of Manchester.

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Article provided by University of Manchester in its journal Manchester School.

Volume (Year): 75 (2007)
Issue (Month): 5 (09)
Pages: 617-633

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Handle: RePEc:bla:manchs:v:75:y:2007:i:5:p:617-633
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