Research Discussion Papers, Bank of Finland
No 9/1999:
Central Bank Independence and Wage Bargaining Structure - Empirical Evidence
Juha Kilponen ()
Abstract: This paper studies the relationship between central bank
independence, wage bargaining structure and macroeconomic performance in
OECD countries. A cross-sectional time-series (TSCS) model for inflation,
nominal wage growth and unemployment for the period 1973–1996 is estimated
using different and updated measures of central bank independence. The
importance of the price stability objective in the central bank statute is
used as a proxy for the degree of conservativeness of the central bank. A
recently published data set on wage bargaining structure is used, and a
distinction is made between coordination of wage bargaining and formal
centralization. A new measure of union power is constructed, which combines
formal centralization and union density. The implications of the large
differences that can be seen between coverage and unionization rates in
some countries are briefly discussed. Two important results emerge. First,
the central bank's political independence and personnel independence
contribute most importantly to a successful inflation policy. Second, a
high level of coordination contributes to moderate inflation rates and
unemployment, while union monopoly power tends to increase inflation.
Keywords: central bank independence; wage bargaining; monetary policy; (follow links to similar papers)
45 pages, December 7, 1999
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