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Revisiting the Case for a Populist Central Banker

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  • Francesco Lippi

    ()
    (Bank of Italy, Research Department and CEPR)

Abstract

It is known that discretionary policy may give rise to an inflationary bias if wages are negotiated in nominal terms. It has recently been argued that this bias 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). A conceptual flaw of the latter result is identified here. It is shown that when wages are negotiated in nominal terms the result is true only in the special case of a single, allencompassing, 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 decrease welfare.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 386.

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Date of creation: Oct 2000
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Handle: RePEc:bdi:wptemi:td_386_00

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Web page: http://www.bancaditalia.it
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Keywords: central bank conservatism; nominal wage bargaining;

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  1. 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.
  2. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
  3. Guzzo, Vincenzo & Velasco, Andres, 1999. "The case for a populist Central Banker," European Economic Review, Elsevier, vol. 43(7), pages 1317-1344, June.
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