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Unions, fiscal policy and central bank transparency

  • Giuseppe Ciccarone

    (Department of Public Economics, University of Rome 'La Sapienza')

  • Giovanni Di Bartolomeo

    (Department of Public Economics, University of Rome 'La Sapienza')

  • Enrico Marchetti

    (Department of Public Economics, University of Rome 'La Sapienza')

In a unionised economy with supply-side fiscal policy transparency has two contrasting effects on economic performance. Uncertainty on central bank's preferences induces unions to reduce wages but also produces a fully-anticipated expansionary fiscal policy which favours the setting of higher wages. Even if the net effect depends on the preference parameters of public entities and on the effectiveness of fiscal policy on aggregate supply: (i) the positive effects of opacity in unionised economies without fiscal policy are confirmed when the central bank is populist; (ii) if it is instead sufficiently conservative, transparency reduces inflation and the output gap, but at the cost of higher macroeconomic volatility.

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Paper provided by EconWPA in its series Macroeconomics with number 0508004.

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Length: 21 pages
Date of creation: 05 Aug 2005
Handle: RePEc:wpa:wuwpma:0508004
Note: Type of Document - pdf; pages: 21
Contact details of provider: Web page: http://econwpa.repec.org

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