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The Case for a Populist Banker

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  • Andres Velasco
  • Vincenzo Guzzo

Abstract

We present a general equilibrium optimizing model in which we study the joint effects of centralization of wage setting and central bank conservatism on economic performance. Several striking conclusions emerge. In relatively centralized labor markets employment and output are decreasing and inflation is initially increasing and then decreasing in the degree of central bank conservatism. A radical-populist central banker who cares not at all about inflation (alternatively, who is not conservative) maximizes social welfare. Economic performance is not U-shaped in the degree of centralization of the labor market, in contrast to conventional wisdom.

Suggested Citation

  • Andres Velasco & Vincenzo Guzzo, 1998. "The Case for a Populist Banker," NBER Working Papers 6802, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:6802
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    References listed on IDEAS

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    1. Bleaney, Michael, 1996. "Central Bank Independence, Wage-Bargaining Structure, and Macroeconomic Performance in OECD Countries," Oxford Economic Papers, Oxford University Press, vol. 48(1), pages 20-38, January.
    2. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 151-162, May.
    3. al-Nowaihi, Ali & Levine, Paul, 1994. "Can reputation resolve the monetary policy credibility problem?," Journal of Monetary Economics, Elsevier, vol. 33(2), pages 355-380, April.
    4. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
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    Cited by:

    1. Juha Kilponen & David Mayes & Jouko Vilmunen, 1999. "Labour Market Flexibility in Northern Europe," One Europe or Several? Working Papers 2, One-Europe Programme.
    2. Jorge Enrique Restrepo, 1998. "Reglas monetarias en Colombia y Chile," Coyuntura Económica, Fedesarrollo, December.
    3. Arne Heise, 2007. "Institutions, market constellations and growth: The case of South Africa," Annals of Economics and Finance, Society for AEF, vol. 8(2), pages 313-340, November.

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