Populism, Economic Policies, Political Pressure and Central Bank (In)dependence

24 Pages Posted: 10 Apr 2019

See all articles by Donato Masciandaro

Donato Masciandaro

Bocconi University - Department of Economics

Date Written: April 2019

Abstract

This article discusses the relationships between populism, economic policy design and central bank independence (CBI). Assuming that 1) a macro (banking) shock can occur, 2) the incumbent government can face a trade-off between bail-out and bail-in and can finance its public spending choosing between taxes and debt; 3) an independent central bank design the monetary policy strategy assuming a long run perspective – i.e. welfare function maximization; 3) labour and financial assets represent the citizens endowment, with the possibility of monetary and banking externalities, it is possible that the majority of citizens prefer an overall policy design – including monetary policy – that are different from the social optimal ones. Then if the incumbent government wishes to please the voters, the political pressure measures the difference between the government goals and the central bank choices. The political pressure can be considered a proxy for a contingent demand of CBI reform – a metrics for de facto CBI. If we define as populist any policy that guarantees anti- elites redistribution without regard for longer term distortions, a populist pressure that promote a more politically dependent central bank can arise when the elites are sophisticated investors, while the majority of citizens are unsophisticated investors.

Keywords: Populism, Financial Inequality, Monetary Policy, Central bank Independence, Political Economics

JEL Classification: D72, D78, E31, E52, E58, E62

Suggested Citation

Masciandaro, Donato, Populism, Economic Policies, Political Pressure and Central Bank (In)dependence (April 2019). BAFFI CAREFIN Centre Research Paper No. 2019-111. Available at SSRN: https://ssrn.com/abstract=3369544 or http://dx.doi.org/10.2139/ssrn.3369544

Donato Masciandaro (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
98
Abstract Views
476
rank
279,039
PlumX Metrics