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Robust central banking under wage bargaining: Is monetary policy transparency beneficial?

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  • Sánchez, Marcelo

Abstract

We study the role of transparency in an environment of robust monetary policy under wage bargaining. The standard view from the game-theoretical literature is that, with unionised labour markets, monetary policy transparency is unambiguously “bad” (it induces increases in wage and price inflation, unemployment and may lead to higher inflation uncertainty). The empirical literature is instead ambiguous about the macroeconomic effects of transparency. By recasting the earlier theory into a robust monetary policy environment, and focusing transparency on the uncertainty about the preference for price stability, we show that the macroeconomic effects of transparency are more favourable than normally found. The impact on nominal wages, inflation and real variables (real wages and unemployment) is not parameter-free but depends on the public's informedness about this coefficient. The impact on real variables is found to disappear in case unions do not internalise the effect of wage decisions on the economy (i.e. in the case of atomistic unions). Finally, we find that the effect of transparency on inflation uncertainty is more complex than in the standard approach. We show that transparency may have the beneficial effect of reducing inflation variability not only when monetary uncertainty is low (as previously reported), but also when monetary uncertainty exceeds an upper threshold.

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  • Sánchez, Marcelo, 2011. "Robust central banking under wage bargaining: Is monetary policy transparency beneficial?," Economic Modelling, Elsevier, vol. 28(1), pages 432-438.
  • Handle: RePEc:eee:ecmode:v:28:y:2011:i:1:p:432-438
    DOI: 10.1016/j.econmod.2010.08.005
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    Cited by:

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    2. Christoph S. Weber, 2020. "The unemployment effect of central bank transparency," Empirical Economics, Springer, vol. 59(6), pages 2947-2975, December.
    3. Oros, Cornel & Zimmer, Blandine, 2015. "Uncertainty and fiscal policy in a monetary union: Why does monetary policy transmission matter?," Economic Modelling, Elsevier, vol. 50(C), pages 85-93.
    4. Marcelo Sánchez, 2013. "On the Limits of Transparency: The Role of Imperfect Central Bank Knowledge," International Finance, Wiley Blackwell, vol. 16(2), pages 245-271, June.

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    More about this item

    Keywords

    Monetary policy transparency; Robust control; Wage bargaining; Model uncertainty;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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