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Revisiting the Case for a Populist Central Banker

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  • Lippi, Francesco

Abstract

It has been argued that the inflationary bias of discretionary monetary policy can be eliminated, and welfare maximized, by the appointment of a central banker who does not care at all about inflation (a 'populist central banker'). We show that this result hinges crucially on the assumption that wage bargaining occurs in terms of the real wage. When the strategic variable chosen by the unions is the nominal wage, the above result is true only in the special case of a single, all-encompassing, union. In the more general case of multiple unions, however, inflation increases linearly with their number and a populist central bank may turn out to be bad for welfare. The paper also shows that whether unions bargain their wages in nominal or in real terms influences the number of channels through which monetary policy can have systematic effects on real variables.

Suggested Citation

  • Lippi, Francesco, 1999. "Revisiting the Case for a Populist Central Banker," CEPR Discussion Papers 2306, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2306
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    References listed on IDEAS

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    1. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(4), pages 1169-1189.
    2. Alex Cukierman, 1998. "The Economics of Central Banking," International Economic Association Series, in: Holger C. Wolf (ed.), Contemporary Economic Issues, chapter 3, pages 37-82, Palgrave Macmillan.
    3. Cukierman, Alex & Lippi, Francesco, 1999. "Central bank independence, centralization of wage bargaining, inflation and unemployment:: Theory and some evidence," European Economic Review, Elsevier, vol. 43(7), pages 1395-1434, June.
    4. Alex Cukierman, 1998. "The Economics of Central Banking," International Economic Association Series, in: Holger C. Wolf (ed.), Contemporary Economic Issues, chapter 3, pages 37-82, Palgrave Macmillan.
    5. Guzzo, Vincenzo & Velasco, Andres, 1999. "The case for a populist Central Banker," European Economic Review, Elsevier, vol. 43(7), pages 1317-1344, June.
    6. Lippi, Francesco, 1999. "Strategic Monetary Policy with Non-Atomistic Wage Setters: A Case for Non-Neutrality," CEPR Discussion Papers 2218, C.E.P.R. Discussion Papers.
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    More about this item

    Keywords

    Central Bank Conservatism; Monetary Policy Games; Non-Atomism; Wage Setting;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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