نهادهای سیاست پولی بهینه اجتماعی

Research on the interaction between wage setters and central banks has shown that the classical dichotomy of monetary policy models in the tradition of Barro and Gordon [Journal of Political Economy 91 (1983) 589] does not hold if an inflation motive of wage setters is introduced. In this paper, the conditions for this result are re-examined under different assumptions concerning the exact timing of the strategic game, and the consequences for the socially optimal delegation rules and incentive contracts for central bankers are derived. It is shown that the relationship between central bank conservativeness and macroeconomic performance—and hence the design of optimal monetary policy institutions—is sensitive to the modelling choice. In particular, the case for an ultra-populist central banker is valid only under assumptions that appear to be quite unrealistic.

Economic institutions are shaped by theoretical perceptions of the possible and proper roles they can play in society. This observation is certainly relevant for the shift of monetary policy institutions towards a more conservative stance (see Maxfield, 1998 for a comprehensive account from a political economy perspective). The desirability of conservative monetary policy follows directly from the strict dichotomy of the determination of real and nominal variables in traditional models of monetary policy Kydland and Prescott, 1977 and Barro and Gordon, 1983. In these models, real activity is exclusively determined by the behaviour of the private sector, whereas monetary policy is directed to the choice of the underlying inflation rate in equilibrium. “Inflation is always and everywhere a monetary phenomenon”, the famous dictum of Friedman (1968a, p. 39), thus should be complemented by the statement that real variables are always and everywhere a private sector phenomenon. Friedman (1968b) coined the metaphor of the “natural rate of unemployment” to indicate this theoretical assumption of the independence of real activity from the conduct of monetary policy. As it is well known, in such an environment, discretionary monetary policy leads to an inefficiently high time consistent rate of inflation because of the futile desire of central bankers to increase output above the natural rate. This line of reasoning had empirical appeal for the 1970s, when high inflation and low levels of unemployment coincided. The same methodological background has been used to explain high and persistent unemployment, especially in Europe. In the main contributions to this literature Layard et al., 1991, Lindbeck, 1993 and Phelps, 1994, wage setting is modelled as real wage setting, and monetary policy or anything else that could be associated with demand management has no influence on real variables in equilibrium, except in the presence of hysteresis (see e.g. Ball, 1997). 1 The traditional approach has been challenged by models of the interaction between monetary policy and the private sector that allow for a well-defined influence of both agents on real and nominal variables Cubitt, 1992, Cubitt, 1995, Cubitt, 1997, Gylfason and Lindbeck, 1994, Skott, 1997, Guzzo and Velasco, 1999, Cukierman and Lippi, 1999 and Coricelli et al., 2000. The key to this non-neutrality result is a more careful characterization of the preferences of the private sector (wage setters), more specifically, the degree of inflation aversion. Against this background, the purpose of this paper is twofold. First, the theoretical conditions under which the aforementioned non-neutrality of monetary policy does indeed hold are demonstrated and discussed. I will show that the traditional paradigm of the classical dichotomy does not hold if 1. wage setters are inflation averse, and 2. wage setters take into account the influence of their wage setting decision on inflation. Second, I re-examine the normative policy implications for the optimal design of monetary policy institutions. More specifically, I reconsider the Rogoff (1985) suggestion that society should delegate monetary policy to a conservative central banker and the idea of Persson and Tabellini (1993) and Walsh (1995) proposing optimal incentive contracts for monetary policy makers. I show that—and how—the optimal design of both institutions depends on the characteristics of the wage setting process. Both of these topics are discussed in two distinct set-ups. First, following the traditional literature on monetary policy in the spirit of Barro and Gordon (1983) and Rogoff (1985), the strategic interaction between wage setters and monetary policy makers is analyzed in the context of (symmetric) Nash models. Second, as some authors have employed the assumption of a Stackelberg leadership position of wage setters vis-á-vis the central bank Guzzo and Velasco, 1999, Cukierman and Lippi, 1999 and Coricelli et al., 2000, I solve the game in this set-up as well. Hence, the present paper also contributes to the (hitherto rather implicit) debate about the appropriate modelling strategy.2 In the next section, the underlying model of the economy is described. The preferences of wage setters and the government are characterized in Section 3. Section 4 solves the strategic games. In Section 5, the implications of these solutions for optimal delegation and incentive contracts are derived. Section 6 offers a brief discussion of the appropriateness of the Nash and Stackelberg solution concepts.

Given the differences between the Nash and Stackelberg scenarios with regard to positive and normative implications, the problem is to identify the adequate description of reality. To be sure, both models are simplifying descriptions of the interaction between central banks and the private sector, and hence the choice is not simple. Nevertheless, it is worth reflecting on the conditions under which one concept is the better description.19 The Stackelberg assumption can be defended on the basis that nominal wages are usually set for a period of 1 year or more, whereas central bank boards typically meet bi-weekly. Hence, one might argue that central banks can react in a meaningful way to wage setting behaviour. This, however, is less clear if one takes into account the long (and variable) lags between implementation and effects of monetary policy and the staggered nature of wage bargains. Furthermore, the symmetric Nash scenario may be considered the better “one-shot” game approximation to a repeated game between the two agents. Concerning the normative implications of the analysis, two points stand out. First, if wage setters care about inflation and wage setting is sufficiently centralized, the exclusive focus of central banks on nominal variables is generally not optimal. Thus, central bank institutions should be conditioned on the structure and preferences or observed practice of wage setters. These things are not easily and unambiguously measured, and also not necessarily constant over time, which makes the exact design of monetary policy institutions a delicate issue. Second, the optimality of delegation to an ultra-populist central banker is implied by the Stackelberg solution if wage setting is completely centralized. Even if the Stackelberg concept is appropriate, however, this result is fragile and should not be taken too seriously. In the hands of myopic politicians, this argument may well be abused to rationalize a return to exceedingly populistic monetary policy institutions.