Revisiting the Case for a Populist Central Banker
AbstractIt 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.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2306.
Date of creation: Dec 1999
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Other versions of this item:
- Lippi, F., 2000. "Revisiting the Case for a Populist Central Banker," Papers 386, Banca Italia - Servizio di Studi.
- Francesco Lippi, 2000. "Revisiting the Case for a Populist Central Banker," Temi di discussione (Economic working papers) 386, Bank of Italy, Economic Research and International Relations Area.
- 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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- 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.
- Guzzo, Vincenzo & Velasco, Andres, 1999. "The case for a populist Central Banker," European Economic Review, Elsevier, vol. 43(7), pages 1317-1344, June.
- 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.
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