The Impact of Central Bank Independence and Union Concentration on Macroeconomic Perfromance in the Presence of Aggregate Supply Shocks. Evidence from 10 OECD Countries (1971-85)

Y.K. Chou

No 805, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: In this paper, we use panel data from 1971 to 1985 to test the hypothesis that differences in monetary and wage institutions can explain a significant fraction of the variations in the macroeconomic performance of 10 OECD countries following the OPEC shocks of 1973-74 and 1979-80. After controlling for central bank independence, we detect a hump-shaped relationship between union density and inflation, and a negative relationship between union concentration and inflation. These findings are robust to the use of different estimators and across various assumptions on the structure of error terms. The impact of central bank independence and union variables on unemployment is more ambiguous, and is sensitive to the inclusion of interactions between these variables. Interesting results are obtained when we split out sample, first by the degree of central bank independence, and then by union concentration.

Keywords: Collective bargaining; central bank independence; inflation; unemployment (search for similar items in EconPapers)
JEL-codes: E24 E31 E58 J51 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2001
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