Zusammenfassung
Conventional wisdom holds that a conservative central banker reduces equilibrium inflation with no cost in terms of real activity. More recently, this proposition has been turned around in models with inflation averse wage setters who are Stackelberg leaders vis-à-vis the central bank: In this case a populist central banker with no interest in inflation was shown to lead to the first-best ...
Zusammenfassung
Conventional wisdom holds that a conservative central banker reduces equilibrium inflation with no cost in terms of real activity. More recently, this proposition has been turned around in models with inflation averse wage setters who are Stackelberg leaders vis-à-vis the central bank: In this case a populist central banker with no interest in inflation was shown to lead to the first-best equilibrium. This note demonstrates that the Stackelberg assumption is crucial for this result and that the Nash solution of the same model does not generally support the case for a populist central banker.