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Populism, Group Thinking and Banking Policy

Author

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  • Donato Masciandaro
  • Federico Faveretto

Abstract

This paper builds a model of populism called Democratic Rioting in which citizens - i.e., the poor and teh rich - are assumed to be heavily influenced by psychological group dynamics that result from banking shocks. We highlight a display of anger that is channelled through an election instead of in the streets. In turn the anger - a self-serving bias - can be influenced by non-financial news about immigration, welfare plans and housing plans. Therefore after a banking shock the consensus on a myopic populisr policy can depend on many issues that have nothing to do with the bailout decision itself. We describe a mechanism that can be applied to the aftermath of both the Great Recession and the Great Depression.

Suggested Citation

  • Donato Masciandaro & Federico Faveretto, 2020. "Populism, Group Thinking and Banking Policy," BAFFI CAREFIN Working Papers 20133, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    • Handle: RePEc:baf:cbafwp:cbafwp20133
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    File URL: https://repec.unibocconi.it/baffic/baf/papers/cbafwp20133.pdf
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    Citations

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    Cited by:

    1. Gian Italo Bischi & Federico Favaretto & Edgar J. Sanchez Carrera, 2022. "Long-term causes of populism," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 17(1), pages 349-377, January.

    More about this item

    Keywords

    Populism; Political Economics; Behavioural economics; Financial inequality; Banking policy;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy

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