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Optimal Central Bank Conservatism and Monopoly Trade Unions

Author

Listed:
  • Helge Berger
  • Carsten Hefeker
  • Ronnie Schöb
Abstract
OPTIMThe “conservative central banker” has come under attack recently. Explicitly modeling the interaction of a trade union with monetary policy, it has been argued that the standard solution to the inflationary bias in monetary policy might actually be welfare reducing if the trade union has an exogenously given preference against inflation. We reframe this discussion in a standard trade union model. We show that the case against the conservative central banker rests exclusively on the assumption of a strictly nominal outside option (for instance, unemployment benefits) for the union. There is no welfare gain associated with making the central bank less conservative than society, however if the outside option is in real terms. As the nominal components of the trade union’s outside option are mainly public transfers, we also show that the conservative central banker is always optimal if the government can choose the level of unemployment benefits as well as the degree of central bank conservatism.

Suggested Citation

  • Helge Berger & Carsten Hefeker & Ronnie Schöb, 2001. "Optimal Central Bank Conservatism and Monopoly Trade Unions," CESifo Working Paper Series 407, CESifo.
    • Handle: RePEc:ces:ceswps:_407
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    References listed on IDEAS

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    Cited by:

    1. Gruener Hans Peter & Hayo Bernd & Hefeker Carsten, 2009. "Unions, Wage Setting and Monetary Policy Uncertainty," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-25, October.
    2. Nicola Acocella & Giovanni Bartolomeo, 2013. "The Cost Of Social Pacts," Bulletin of Economic Research, Wiley Blackwell, vol. 65(3), pages 238-255, July.
    3. Tilemahos Efthimiadis, 2007. "On Central Bank Independence, Wage Indexing And A Monopoly Union," Bulletin of Economic Research, Wiley Blackwell, vol. 59(1), pages 25-36, January.
    4. Bernd Hayo & Hans Peter Gruner & Carsten Hefeker, 2004. "Monetary policy uncertainty and unionized labour markets," Money Macro and Finance (MMF) Research Group Conference 2003 42, Money Macro and Finance Research Group.
    5. Mr. Irineu E de Carvalho Filho & Mr. Marcello M. Estevão, 2012. "Institutions, Informality, and Wage Flexibility: Evidence From Brazil," IMF Working Papers 2012/084, International Monetary Fund.
    6. Luigi Bonatti, 2007. "The Interaction between the Central Bank and a Single Monopoly Union Revisited: Does Greater Monetary Policy Uncertainty Reduce Nominal Wages?," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 36(3), pages 247-258, November.
    7. Bernd Hayo & Carsten Hefeker, 2001. "Do We Really Need Central Bank Independence? A Critical Re- examination," Macroeconomics 0103006, University Library of Munich, Germany.
    8. Tilemahos Efthimiadis, 2004. "Does Wage Indexing Matter?," Money Macro and Finance (MMF) Research Group Conference 2004 30, Money Macro and Finance Research Group.
    9. Lawler, Phillip, 2007. "Strategic wage setting, inflation uncertainty and optimal delegation," European Journal of Political Economy, Elsevier, vol. 23(4), pages 1105-1118, December.
    10. Athina Zervoyianni & Athanasios Anastasiou & Andreas Anastasiou, 2014. "Does central bank independence really matter? Re-assessing the role of the independence of monetary policy-makers in macroeconomic outcomes," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 8(4), pages 427-473.
    11. Mr. James McHugh, 2002. "Wage Centralization, Union Bargaining, and Macroeconomic Performance," IMF Working Papers 2002/143, International Monetary Fund.
    12. Robert Franzese, 2001. "Strategic Interactions of Monetary Policymakers and Wage/Price Bargainers: A Review with Implications for the European Common-Currency Area," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 28(4), pages 457-486, December.
    13. Hayo, Bernd & Hefeker, Carsten, 2002. "Reconsidering central bank independence," European Journal of Political Economy, Elsevier, vol. 18(4), pages 653-674, November.

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    More about this item

    Keywords

    Central bank; monetary policy; trade unions; conservative central banker;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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