Abstract
The causes of inflation are commonly analyzed as the function of either the organization of wage bargaining or the independence of the central bank. Although these explanations are widely treated as competing, recent evidence suggests that there may be merit to both arguments. This paper presents a game-theoretic model of wage bargaining and monetary policy-making that shows why the two institutional causes are not only complementary, but elements of a more encompassing logic. The empirical superiority of this synthesizing model is demonstrated by reanalyzing data used in Al-Marhubi and Willett (1995) and by presenting new evidence.
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Iversen, T. Erratum: The Political Economy of Inflation: Bargaining Structure or Central Bank Independence?. Public Choice 101, 285–306 (1999). https://doi.org/10.1023/A:1018730513366
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DOI: https://doi.org/10.1023/A:1018730513366