Why the ECB Should be Ultra-Liberal

Rasmus Hoejbjerg Jacobsen ()
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Rasmus Hoejbjerg Jacobsen: Department of Economics, University of Aarhus, Denmark, Postal: 8000 Aarhus C, Denmark

Economics Working Papers from Department of Economics and Business Economics, Aarhus University

Abstract: The statute of the ECB states that its primary target should be to maintain price stability. The theoretical foundation behind this target is that of a socially optimal conservative central banker. We challenge the robustness of this result in a model with endogenous labor market policy, decided upon by a politically motivated government. In this model, the socially optimal choice of central banker is an ultra-liberal, who eliminates both inflation and unemployment and removes the political distortion. Somewhat paradoxically, the labor union supports an ultra-conservative central banker, because this means a more generous labor market policy.

Keywords: Monetary institutions; endogenous labour market policy; lobbying labor union (search for similar items in EconPapers)
JEL-codes: E58 H19 J51 (search for similar items in EconPapers)
Pages: 20
New Economics Papers: this item is included in nep-eec and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:aah:aarhec:2000-10

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