CENTRAL BANK INDEPENDENCE, WAGE-BARGAINING STRUCTURE, AND MACROECONOMIC PERFORMANCE IN OECD COUNTRIES

Abstract

The impact of central bank independence and wage-bargaining structure on inflation and unemployment is explored theoretically and tested empirically for a sample of 17 OECD countries over two separate periods. The results suggest that inflation is lower in economies with greater central bank independence and that the equilibrium unemployment rate depends on the structure of the labour market. Greater central bank independence does not appear to be associated with higher unemployment. IN RECENT years the issue of central bank independence and its impact on the conduct of macroeconomic policy has been much discussed. Theoretically, the work of Rogoff (1985) was seminal. Rogoff argued that governments had an incentive to appoint 'conservative' central bankers (i.e., ones with an anti-inflationary bias) in order to bolster the authorities' anti-inflation