Abstract
Research on the interaction between wage setters and central banks has shown that the classical dichotomy of previous termmonetary policynext term models in the tradition of Barro and Gordon [Journal of Political Economy 91 (1983) 589] does not hold if an inflation motive of wage setters is introduced. In this paper, the conditions for this result are re-examined under different assumptions ...
Abstract
Research on the interaction between wage setters and central banks has shown that the classical dichotomy of previous termmonetary policynext term models in the tradition of Barro and Gordon [Journal of Political Economy 91 (1983) 589] does not hold if an inflation motive of wage setters is introduced. In this paper, the conditions for this result are re-examined under different assumptions concerning the exact timing of the strategic game, and the consequences for the previous termsocially optimalnext term delegation rules and incentive contracts for central bankers are derived. It is shown that the relationship between central bank conservativeness and macroeconomic performance—and hence the design of previous termoptimal monetary policy institutionsnext term—is sensitive to the modelling choice. In particular, the case for an ultra-populist central banker is valid only under assumptions that appear to be quite unrealistic.
Altmetric