The Political Economy of Inflation, Labour Market Distortions and Central Bank Independence
Berthold Herrendorf () and
Manfred J.M. Neumann
No 1969, CEPR Discussion Papers from C.E.P.R. Discussion Papers
Using the citizen-candidate model, we relate the monetary policy objective to individuals' voting decisions and characterize equilibrium inflation and employment under central bank dependence and independence. We also endogenize the decisions about the labour market distortion and central bank independence. Our results are consistent with the fact that across OECD countries, independence is negatively correlated with average inflation and inflation variability and uncorrelated with employment variability. Moreover, we can explain why: (i) in several countries, central banks became independent while labour market distortions remained; (ii) notwithstanding McCallum's (1995) critique, delegation of monetary policy is effective; (iii) some independent central banks do not generate an inflation bias yet stabilize.
Keywords: central bank board; Central Bank Independence; Median Voter; partisan business cycle; representative democracy (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
References: Add references at CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at email@example.com
Journal Article: The Political Economy of Inflation, Labour Market Distortions and Central Bank Independence (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:1969
Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=1969
Access Statistics for this paper
More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().