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Central Bank Conservatism and Labor Market Reform

Henrik Jordahl () and Stefan Laséen ()

Working Papers from Uppsala - Working Paper Series

Abstract: Hoe does central bank conservatism affect labor market reform? In this paper we examine the economic forces at work. An increase in conservation 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 BANKS; LABOUR MARKET; UNEMPLOYMENT; INFLATION (search for similar items in EconPapers)
JEL-codes: E58 E63 J38 (search for similar items in EconPapers)
Pages: 15 pages
Date: 1999
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