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Populism, Political Pressure and Central Bank (in)Dependence


This article analyses the relationships between inequality, political pressure, populism and central bank independence (CBI). If there is financial inequality across citizens, monetary policies yield distributional consequences. Political pressure on central bank will increase. A populist wave fuelled by large demand for redistribution with no regard to long term consequences may undermine actual CBI.

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Fig. 1


  1. Alternatively, as in Gertler et al. (2017), we can assume that each household (family) consists of a continuum of members who can be either workers or bankers. Workers supply labour and earn wages for the household, while bankers manage a financially risky business and transfer the relative earnings back to the household. The number of bankers in each household is heterogeneous.

  2. Note that consumption utility is linear in consumption and the latter is linear in income. An alternative specification, in which utility is concave in consumption and/or the latter is concave in income, would not change our results regarding the redistributive effects. At the cost of increased complexity, such an alternative specification would uncover an additional distortionary channel: more generous bailouts - higher taxation - would have stronger impact on utility because, due to concavity, consumption -and utility - would decrease by a larger amount at the margin. Finally note that, despite our assumption that consumption utility is linear in income, individual’s optimization problem is concave because U(l) in (4) is convex.

  3. The relationship between voting and financial wealth distribution has been explored in Masciandaro and Passarelli (2013) in analysing the policy dilemma between financial regulation and taxation.

  4. In Guzzo and Velasco (1999) and Lippi (2002) a populistic monetary policy is just myopic.


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We are particularly grateful to the editor, George Tavlas, and two anonymous referees for their very constructive comments and useful insights on earlier drafts. The usual disclaimer has to be applied. The authors thank the BAFFI Carefin Centre at Bocconi University for financial support.

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Correspondence to Donato Masciandaro.

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Masciandaro, D., Passarelli, F. Populism, Political Pressure and Central Bank (in)Dependence. Open Econ Rev 31, 691–705 (2020).

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  • Populism
  • Monetary policy
  • Central bank Independence
  • Inequality
  • Political economics

JEL Classification

  • D72
  • D78
  • E31
  • E52
  • E58
  • E62
  • P16