We study monetary policy-making in an economy with many sector-specific monopoly unions. It is assumed that the senior union members are in the majority and – due to the practice of lay-offs by inverse seniority – face a lower unemployment risk than the junior members. Consequently, the...

We use a new theory of price determination – developed by Woodford, Simms and others – to characterize central bank independence and price stability. If fiscal policy guarantees that the price level is determined independently of government’s present value budget constraint, we can say...

This article investigates the impact on economic performance of the timing of moves in a policy game between the government and the central bank for a government with both distributional and stabilization objectives. It is shown that both inflation and income inequality are reduced without...

Monetary theory and policy are part of intertemporal public finance. This Paper reviews some interesting recent developments. The two ghosts are the venerable liquidity trap and the Pigou effect or real balance effect. The eccentricities are negative nominal interest rates and the helicopter...

The paper incorporates three institutional design features into a Kydland-Prescott, Barro-Gordon monetary policy game. It shows that goal-independence and goal-transparency (an explicit inflation target) at the central bank are substitute ‘commitment technologies’ that reduce inflation and...

The literature argues that the benefits of an independent Central Bank accrue at no cost to the real side. In this paper, we argue that the lack of correlation between monetary autonomy and output variability is due to the proactive role of fiscal policy when faced with rigid monetary...

The problem of monetary policy delegation is formulated as a two-stage game between the government and the central bank. In the first stage the government chooses the institutional design of the central bank. Monetary and fiscal policy are implemented in the second stage. When fiscal policy is...

We explore the implications of monetary unification for real interest rates and (relative) public debt levels. The adoption of a common monetary policy renders the risk-return characteristics of the participating countries more similar, so that the substitutability of their public debt increases...

This paper studies how the creation of a European Central Bank (ECB) will change the political economy of monetary policy in Europe. The 12 governors of the EC member countries national central banks of the EEC have recently proposed a statute which delineates the institutional structure of the...

Using the citizen-candidate model, we relate the monetary policy objective to individuals' voting decisions and characterize equilibrium inflation and employment under central bank dependence and independence. We also endogenize the decisions about the labour market distortion and central bank...