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Optimal Central Bank Conservatism and Monopoly Trade Unions
Author:
Mr. Carsten Hefekernull

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,
Mr. Helge Berger
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Mr. Ronnie Schlöbnull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2002: Issue 044
Language:
English
Publication Date:
01 Mar 2002
DOI:
https://doi.org/10.5089/9781451846423.001
ISBN:
9781451846423
ISSN:
1018-5941
Pages:
29
Keywords:
WP; nominal wage; price level; monetary policy; labor market
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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The "conservative central banker" has come under attack recently. On the basis of models in which there is explicit interaction between trade union behavior and monetary policy, it has been argued that if 'trade unions' are averse to inflation, welfare will be lower with a conservative than with a liberal central bank. 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 nominal unemployment benefits as well as the degree of central bank conservatism.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2002: Issue 044