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Tilemahos Efthimiadis
''Unemployment persistence, wage indexing and central bank independence''
( 2009, Vol. 29 No.2 )
This paper examines the effect of wage indexation on the optimal degree of central bank conservativeness in a dynamic economy. In particular, we find that when unemployment persists, wage indexation is inflationary as it lowers the will of the central banker to fight inflation. Furthermore, we show that there is a positive relationship between the degree of the monetary authorities'' discount factor and inflation. We conclude that it is optimal to delegate monetary policy to an independent and conservative central banker.
Keywords: unemployment, persistence, central bank, wage indexing
JEL: E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General
Manuscript Received : Feb 18 2009 Manuscript Accepted : Apr 07 2009

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