The interaction of monetary policy and wages

This paper focuses on the interaction of monetary policy and wage formation in economies with strong labor unions. Government and unions are viewed as endogenous utility maximizers and the macroeconomic consequences of their strategic interaction are explored with the aid of some elements of simple game theory. Specifically, it is shown (a) how labor unions adjust wages to prices so as to maximize their utility following changes in monetary policy; (b) how the effectiveness of monetary policy is circumscribed without necessarily being nullified by the utility-maximizing reactions of unions; and (c) how the interplay of government and unions can create a persistent tendency towards inflation and unemployment simultaneously.     

Time-consistent monetary policy under output persistence

This note merges the fact that real activity is persistent with a Barro-Gordon type model of endogenous monetary policy. It shows that persistence crucially affects policy choices. This applies in non-cooperative games with a finite horizon, and in games with an infinite horizon. Always, enforceable inflation announcements move higher when output persistence increases. Policymakers who discount future utility by 10% annually produce about ten times as much inflation under near-hysteresis as in a natural-rate scenario. A change in the policymaker's time preference may affect inflation both ways, depending on present time preference and persistence.     

Government ideology and monetary policy in OECD countries

Public Choice - We examine the extent to which government ideology has influenced monetary policy in OECD countries since the 1970s. In line with important changes in the global economy and...     

European monetary policy and the ECB rotation model

This paper analyses the voting power of individual members of the ECB Governing Council and, in particular, that of the Executive Board in the light of recent information published by the ECB. Using the randomization scheme based on the multilinear extension of games, we modify the standard analysis in three ways. First, we include heterogeneous preferences of the Governing Council members. Second, we address the agenda-setting power of the ECB president. Third, we take into account the dynamic decision setting. We show that the rotation model is able to stabilize the position of the core countries of the euro area.     

Bureaucracy,inefficiency, and time

This paper examines the bureaucrat's choice between devoting resources to economic rents (organizational slack) and maximizing the budget of the agency. A new model of bureaucracy is developed using utility rather than a demand function as its foundation. It is shown that increases in income alter the slack-budget constraint to favor organizational slack over budget-maximization. Modern federal bureaucracies in the U.S. are predicted to be slack-maximizing and X-inefficient.     

The disparate labor market impacts of monetary policy

Employing two widely used approaches to identify the effects of monetary policy, this paper explores the differential impact of policy on the labor market outcomes of teenagers, minorities, out‐of‐school youth, and less‐skilled individuals. Evidence from recursive vector autoregressions and autoregressive distributed lag models that use information on the Federal Reserve's contractionary initiatives indicate that the employment‐population ratio of minorities is more sensitive to contractionary monetary policy than that of whites. The ratio falls primarily because of an increase in unemployment and not because of a decline in labor force participation. Monetary policy appears to have a disproportionate effect on the unemployment rate of teenagers, particularly African American teenagers. Their employment‐population ratios fall because of increased difficulty in obtaining employment. The larger responses are not caused by their higher likelihood of having been employed in industries and occupations that are more sensitive to contractionary monetary policy. © 2004 by the Association for Public Policy Analysis and Management.     

Bureaucracy,organization culture and development

The first part of the paper discusses the concept of organizational culture and highlights its value as an aid to understanding the way organizations work. Using four basic models of organization culture (power, role, task and person) the paper then goes on to describe a questionnaire survey of cultures in development organizations. The questionnaire required two sets of responses: firstly an indication of preferred organization culture and secondly the respondents' perception of the way their organization actually works. Whilst the vast majority of respondents prefer task-orientated cultures, most actually perceive themselves to be operating in a role culture (bureaucracy), whilst a large minority perceives a power (political) culture. These results demonstrate an inherent tension in many people's working lives. They also indicate the necessity of taking into account the political environment of work when designing training courses; few organizations appear to operate in the rational way upon which many development techniques and practices are posited. In the final part of the paper there is discussion of the need to make a modification to the basic cultural models in order to make them particularly relevant to developing countries.     

Attitude-dependent altruism, turnout and voting

This paper presents a goal-oriented model of political participation based on two psychological assumptions. The first is that people are more altruistic towards individuals that agree with them and the second is that people’s well-being rises when other people share their personal opinions. The act of voting is then a source of vicarious utility because it raises the well-being of individuals that agree with the voter. Substantial equilibrium turnout emerges with nontrivial voting costs and modest altruism. The model can explain higher turnout in close elections as well as votes for third-party candidates with no prospect of victory. For certain parameters, these third party candidates lose votes to more popular candidates, a phenomenon often called strategic voting. For other parameters, the model predicts “vote-stealing” where the addition of a third candidate robs a viable major candidate of electoral support.     

Time inconsistency of monetary policy: Empirical evidence from polls

While the basic model of time inconsistency, put forward by Barro and Gordon (Barro, R. J., & Gordon, D. B. (1983). Journal of Political Economy, 91, 589–610) is widely accepted now, several authors have expressed serious doubts about the empirical relevance of the model in explaining inflation. Interestingly enough, few attempts have been made so far to test for the existence of inflationary biases empirically. Theory predicts a positive correlation between a monetary authority's relative preference for the high employment goal and inflation. Using polling data from six countries as a proxy for public preferences we provide empirical evidence in favor of the Barro-Gordon-model.     

Stagflationary bias and the interaction of monetary policy and wages in a unionized economy

Economics Research Centre, School of Economic and Social Studies, University of East Anglia, Norwich NR4 7TJ, U.K. The paper investigates the claim of Gylfason and Lindbeck (Public Choice, 1994) that a stagflationary bias arises from the interaction between monetary policymaking and wagesetting if, among other things, the government and unions share a concern for inflation. It uses a game theoretic model of this interaction, in which the government plays an economy-wide union. Though simple, this nests several other models as special cases. In that corresponding to Gylfason and Lindbeck's model, the factors which they identify are shown to be sufficient for stagflationary bias, in a specified sense. However, for the union to care about inflation is not a necessary condition. The main result of the paper concerns the more general model. It establishes a set of necessary and sufficient conditions for stagflationary bias, as previously defined. These conditions do not include a shared concern for inflation. The paper comments briefly on the significance of this result for stagflation and economic modelling.     

Dispersed communication by central bank committees and the predictability of monetary policy decisions

The paper asks whether members of central bank decision-making committees should communicate with the public in a collegial manner, by conveying the consensus or majority view of the committee, or in an individualistic way, by providing the diversity of views among the committee members. It finds that more active as well as more consistent communication by committee members improves the predictability of monetary policy decisions significantly. This effect is sizeable as communication dispersion across committee members accounts on average for one third to one half of the market’s prediction errors of FOMC policy decisions. Moreover, more active and more consistent communication are found to also reduce the degree of uncertainty about the future path of interest rates. These findings suggest that a collegial communication which stresses the consensus view on policy inclinations can enhance the effectiveness of central bank communication.     

Opaque rather than transparent: Why the public cannot monitor monetary policy

Federal Reserve officials and many observers of monetary policy claim that the implementation of monetary policy has become more “transparent” over the last decade. This paper argues that monetary policy is anything but transparent because multiple and conflicting goals for monetary policy still exist, precise targets for these goals never are defined, the Fed’s economic model is unknown to the public and, by confusing its apparent intermediate target variable with its true policy instrument, actions taken to be stimulative can be contractionary and vice versa.     

Representative Bureaucracy,Gender Congruence,and Student Performance in China

This article investigates the applicability of representative bureaucracy theory in China’s education sector. Past research mainly tests the theory of representative bureaucracy in the typical Western developed countries. Rarely, however, is attention paid to developing and non-Western contexts. This study examines the influence of gender congruence on student performance in Chinese middle schools by analyzing data from a national representative survey conducted between 2013 and 2014. Empirical results indicate that the presence of female math teachers significantly increases the math scores of female students. Further examination supports the interpretation that female math teachers actively represent the interests of female students, and that the alternative mechanism, role-model effects, only partially shapes the interactions between female teachers and female students.