NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Case for a Populist Banker

Andres Velasco, Vincenzo Guzzo

NBER Working Paper No. 6802
Issued in November 1998
NBER Program(s):International Finance and Macroeconomics

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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Document Object Identifier (DOI): 10.3386/w6802

Published: Published as "The Case for a Populist Central Banker", European Economic Review, Vol. 43, no. 7 (June 1999): 1317-1344.

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