Economic Reforms and the Indirect Role of Monetary Policy

Andrea Beccarini

No 2512, CQE Working Papers from Center for Quantitative Economics (CQE), University of Muenster

Abstract: Due to pressure from some lobbies, the government is unwilling to perform structural reforms. The probability of its reelection depends, however, on a positive business cycle. The central bank may create surprise deflation even though it maximizes the public’s utility function and even if it faces a rational market. This may explain why the ECB, but not the US FED, is found to be unaffected by the inflation bias.

Keywords: Political Business Cycles; Time Inconsistency of Monetary Policy (search for similar items in EconPapers)
JEL-codes: E32 E58 (search for similar items in EconPapers)
Pages: 6 pages
Date: 2012-10
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:cqe:wpaper:2512

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