Optimal Central Bank Conservatism and Monopoly Trade Unions

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

No 407, CESifo Working Paper Series from CESifo

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.

Keywords: Central bank; monetary policy; trade unions; conservative central banker (search for similar items in EconPapers)
Date: 2001
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Optimal Central Bank Conservatism and Monopoly Trade Unions (2004)
Working Paper: Optimal Central Bank Conservatism and Monopoly Trade Unions (2002)
Working Paper: Optimal Central Bank Conservatism and Monopoly Trade Unions (2000)
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