ON CENTRAL BANK INDEPENDENCE, WAGE INDEXING AND A MONOPOLY UNION

doi:10.1111/j.0307-3378.2007.00251.x

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Wiley InterScience

Bulletin of Economic Research

Volume 59 Issue 1, Pages 25 - 36

Published Online: 19 Jan 2007

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ON CENTRAL BANK INDEPENDENCE, WAGE INDEXING AND A MONOPOLY UNION

Tilemahos Efthimiadis*

*Department of Economics, University of Macedonia, Greece

Correspondence: T. Efthimiadis, Department of Economics, University of Macedonia, Egnatia 156, Thessaloniki, Greece 54006. Email: tef@uom.gr. This paper is an abridged version of chapter 2 of my PhD thesis submitted at the Department of Economics, University of Macedonia, Thessaloniki, Greece. I would like to thank my supervisor Professor Iannis Mourmouras and two anonymous referees for their comments and suggestions. Financial support from the European Union ('Herakleitos' program) is gratefully acknowledged. The usual disclaimer applies.

KEYWORDS

central bank independence • monopoly union • wage indexing

KEYWORDS

E24 • E52 • E58 • J51

ABSTRACT

The Rogoff proposition (Quarterly Journal of Economics, 100 (1985), pp. 1169–90) that it is socially optimal to delegate monetary policy to a central banker that is more inflation-averse than society has been widely accepted and implemented in practice. However, there is a literature that argues that, if there is an inflation-averse monopoly union in the economy, it is optimal to delegate monetary policy to an 'ultra-liberal' central banker, i.e., a central banker that is interested only in output. In this paper, we examine whether introducing wage indexing into the latter models has any effect on the optimal degree of central bank conservativeness and find that, once a monopoly-type labour union is introduced, wage indexing does not matter for the determination of the optimal degree of conservativeness of the monetary authority.

DIGITAL OBJECT IDENTIFIER (DOI)

10.1111/j.0307-3378.2007.00251.x About DOI