Optimal Central Bank Conservatism and Monopoly Trade Unions

Helge Berger (), Carsten Hefeker and Ronnie Schöb
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Ronnie Schöb: International Monetary Fund
Authors registered in the RePEc Author Service: Ronnie Schoeb

IMF Staff Papers, 2004, vol. 51, issue 3, 585-605

Abstract: The "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 exogenous preference against inflation. We reframe this discussion in a standard trade union model. We show that the case against the conservative central banker rests 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 nominal unemployment benefits as well as the degree of central bank conservatism.

JEL-codes: E50 E58 J50 J51 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (7)

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Working Paper: Optimal Central Bank Conservatism and Monopoly Trade Unions (2002)
Working Paper: Optimal Central Bank Conservatism and Monopoly Trade Unions (2001)
Working Paper: Optimal Central Bank Conservatism and Monopoly Trade Unions (2000)
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