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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.

Suggested Citation

  • 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.
  • Handle: RePEc:bdi:wptemi:td_386_00
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    References listed on IDEAS

    as
    1. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1169-1189.
    2. Guzzo, Vincenzo & Velasco, Andres, 1999. "The case for a populist Central Banker," European Economic Review, Elsevier, vol. 43(7), pages 1317-1344, June.
    3. Cukierman, Alex & Lippi, Francesco, 1999. "Central bank independence, centralization of wage bargaining, inflation and unemployment:: Theory and some evidence," European Economic Review, Elsevier, vol. 43(7), pages 1395-1434, June.
    4. 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.
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    Citations

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    Cited by:

    1. Helge Berger & Carsten Hefeker & Ronnie Schöb, 2004. "Optimal Central Bank Conservatism and Monopoly Trade Unions," IMF Staff Papers, Palgrave Macmillan, vol. 51(3), pages 585-605, November.
    2. Cavallari, Lilia, 2001. "Inflationary performance in a monetary union with large wage setters," ZEI Working Papers B 11-2001, University of Bonn, ZEI - Center for European Integration Studies.
    3. Lawler, Phillip, 2005. "Central bank inflation contracts and strategic wage setting in a multiunion economy," Economics Letters, Elsevier, vol. 86(3), pages 323-329, March.
    4. Bernd Hayo & Carsten Hefeker, 2001. "Do We Really Need Central Bank Independence? A Critical Re- examination," Macroeconomics 0103006, EconWPA.
    5. Lilia Cavallari, 2001. "Macroeconomic Performance and Wage Bargaining in a Monetary Union," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 28(4), pages 419-433, December.
    6. Luca Dedola & Eugenio Gaiotti & Luca Silipo, 2001. "Money demand in the euro area: do national differences matter?," Temi di discussione (Economic working papers) 405, Bank of Italy, Economic Research and International Relations Area.
    7. Guzzo, Vincenzo & Velasco, Andres, 2002. "Revisiting the case for a populist central banker: A comment," European Economic Review, Elsevier, vol. 46(3), pages 613-621, March.
    8. Gnocchi, Stefano, 2006. "Optimal simple monetary policy rules and non-atomistic wage setters in a New-Keynesian framework," Working Paper Series 690, European Central Bank.
    9. Clemente De Lucia, 2003. "Wage Setters, Central Bank Conservatism and Economic Performance," ISAE Working Papers 34, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
    10. Sorge, Marco M., 2013. "Robust delegation with uncertain monetary policy preferences," Economic Modelling, Elsevier, vol. 30(C), pages 73-78.
    11. Marcelo de Carvalho Griebeler, 2015. "On the existence of loss function for some useful classes of central bankers," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 8(3), pages 229-241.
    12. Cuciniello Vincenzo, 2007. "Optimal monetary policy in a monetary union with non-atomistic wage setters," wp.comunite 0014, Department of Communication, University of Teramo.
    13. Christoph S. Weber, 2017. "The Unemployment Effect of Central Bank Transparency," Working Papers 172, Bavarian Graduate Program in Economics (BGPE).
    14. Cuciniello, Vincenzo, 2007. "Strategic monetary policy in a monetary union with non-atomistic wage setters," MPRA Paper 3789, University Library of Munich, Germany, revised Jun 2007.
    15. Acocella, Nicola & Di Bartolomeo, Giovanni & Tirelli, Patrizio, 2009. "The macroeconomics of social pacts," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 202-213, October.
    16. Nicola Acocella & Giovanni Bartolomeo & Wilfried Pauwels, 2010. "Is there any scope for corporatism in macroeconomic policies?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 37(4), pages 403-424, November.
    17. Vincenzo Cuciniello, 2007. "Optimal monetary policy under a floating regime with non-atomistic wage setters," IHEID Working Papers 12-2007, Economics Section, The Graduate Institute of International Studies.
    18. Acocella, Nicola & Di Bartolomeo, Giovanni & Tirelli, Patrizio, 2007. "Monetary conservatism and fiscal coordination in a monetary union," Economics Letters, Elsevier, vol. 94(1), pages 56-63, January.
    19. Nicola Acocella & Giovanni Bartolomeo & Patrizio Tirelli, 2007. "Fiscal Leadership and Coordination in the EMU," Open Economies Review, Springer, vol. 18(3), pages 281-289, July.
    20. Richard Mash, 2000. "The Time Inconsistency of Monetary Policy with Inflation Persistence," Economics Series Working Papers 15, University of Oxford, Department of Economics.
    21. Griebeler, Marcelo de Carvalho, 2015. "The Naive Central Banker," Revista Brasileira de Economia - RBE, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 69(3), September.
    22. Hayo, Bernd & Hefeker, Carsten, 2002. "Reconsidering central bank independence," European Journal of Political Economy, Elsevier, vol. 18(4), pages 653-674, November.

    More about this item

    Keywords

    central bank conservatism; nominal wage bargaining;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining

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