Central Bank Conservatism and Labor Market Reform

Henrik Jordahl () and Stefan Laséen ()

No 1999:23, Working Paper Series from Uppsala University, Department of Economics

Abstract: How does central bank conservatism affect labor market reform? In this paper we examine the economic forces at work. An increase in conservatism triggers two opposite effects. It reduces the inflation bias of discretionary monetary policy and hence the benefits of a reform. It also increases unemployment variability, which increases the precautionary benefits of a reform. In combination, the two effects produce a u-shaped relation between conservatism and labor market reform. An empirical investigation provides evidence consistent with this prediction.

Keywords: Central bank independence; labor market reform; credibility; flexibility; inflation; unemployment; rigidities (search for similar items in EconPapers)
JEL-codes: E58 E63 J38 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mon
Date: 1999-12-01
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Published in European Journal of Political Economy, 2005, pages 345-363.

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Working Paper: Central Bank Conservatism and Labor Market Reform (1999)
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Persistent link: http://EconPapers.repec.org/RePEc:hhs:uunewp:1999_023

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