Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/70366 
Year of Publication: 
2000
Series/Report no.: 
Research Report No. 2000-14
Publisher: 
The University of Western Ontario, Department of Economics, London (Ontario)
Abstract: 
The conservative central banker has come under attack recently. Explicitly modeling the interaction of a trade union with monetary policy, it has been argued that the standard solution to the inflationary bias in monetary policy might actually be welfare reducing if the trade union has an exogenously given preference against inflation. We reframe this discussion in a standard trade union model. We show that the case against the conservative central banker rests exclusively on the assumption of a strictly nominal outside option for the union. There is no welfare gain associated with making the central bank less conservative than society, however if the outside option is in real terms. As the nominal components of the trade union's outside option are mainly public transfers, we also show that the conservative central banker is always optimal if the government can choose the level of unemployment benefits as well as the degree of central bank conservatism.
Subjects: 
central bank
monetary policy
trade unions
conservative central banker
JEL: 
E50
E58
J50
J51
Document Type: 
Working Paper

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