In a unionized economy with endogenous fiscal policy central bank transparency has two contrasting effects on wages, the relative strength of which determines the macroeconomic performance. This finding allows us to demonstrate that (i) if the central bank is populist the effect of transparency is negative, and (ii) if policy makers are sufficiently conservative and the government is active, transparency decreases inflation and unemployment, but opposite results apply if a populist government faces a tight fiscal constraint. Macroeconomic volatility disappears with full transparency and increases, in general, with opacity, but the relationship is hump-shaped when the central bank is strongly populist.
Unions, fiscal policy and central bank transparency
MARCHETTI, Enrico;
2007-01-01
Abstract
In a unionized economy with endogenous fiscal policy central bank transparency has two contrasting effects on wages, the relative strength of which determines the macroeconomic performance. This finding allows us to demonstrate that (i) if the central bank is populist the effect of transparency is negative, and (ii) if policy makers are sufficiently conservative and the government is active, transparency decreases inflation and unemployment, but opposite results apply if a populist government faces a tight fiscal constraint. Macroeconomic volatility disappears with full transparency and increases, in general, with opacity, but the relationship is hump-shaped when the central bank is strongly populist.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.