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Why the ECB Should be Ultra-Liberal

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  • Rasmus Hoejbjerg Jacobsen

    () (Department of Economics, University of Aarhus, Denmark)

Abstract

The statute of the ECB states that its primary target should be to maintain price stability. The theoretical foundation behind this target is that of a socially optimal conservative central banker. We challenge the robustness of this result in a model with endogenous labor market policy, decided upon by a politically motivated government. In this model, the socially optimal choice of central banker is an ultra-liberal, who eliminates both inflation and unemployment and removes the political distortion. Somewhat paradoxically, the labor union supports an ultra-conservative central banker, because this means a more generous labor market policy.

Suggested Citation

  • Rasmus Hoejbjerg Jacobsen, "undated". "Why the ECB Should be Ultra-Liberal," Economics Working Papers 2000-10, Department of Economics and Business Economics, Aarhus University.
  • Handle: RePEc:aah:aarhec:2000-10
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    File URL: ftp://ftp.econ.au.dk/afn/wp/00/wp00_10.pdf
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    Keywords

    Monetary institutions; endogenous labour market policy; lobbying labor union;

    JEL classification:

    • 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
    • H19 - Public Economics - - Structure and Scope of Government - - - Other

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