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The Case for a Populist Banker

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  • Andres Velasco
  • Vincenzo Guzzo
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    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.

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    File URL: http://www.nber.org/papers/w6802.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6802.

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    Date of creation: Nov 1998
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    Publication status: Published as "The Case for a Populist Central Banker", European Economic Review, Vol. 43, no. 7 (June 1999): 1317-1344.
    Handle: RePEc:nbr:nberwo:6802

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    1. 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 151-62, May.
    2. 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.
    3. 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.
    4. Robert J. Barro & David B. Gordon, 1981. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
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