Centralised Wage Setting, Inflation Contracts, and the Optimal Choice of Central Banker
The paper examines the appropriate design of central banking institutions in an economy in which the nominal wage is set by an inflation-averse monopoly union as a positive mark-up over its market-clearing value. The analysis considers both the optimal choice of central banker and the potential role for a linear inflation contract. The optimal set of arrangements is a central banker who attaches less significance to inflation than does society, combined with an inflation contract where the value of the contract parameter is related to the union's degree of inflation-aversion.
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Volume (Year): 110 (2000)
Issue (Month): 463 (April)
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