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Populism, Economic Policies and Central Banking Populism, Economic Policies and Central Banking Edited by Ernest Gnan and Donato Masciandaro Contributions by Itai Agur • Carola Binder • Cristina Bodea • Claudio Borio • Italo Colantone • Federico Favaretto • Ana Carolina Garriga • Stefan Gerlach • Ernest Gnan 0DVDDNL +LJDVKLMLPD 5\V]DUG .RNRV]F]\ĔVNL -RDQQD 0DFNLHZLF]à\]LDN 1LFROiV (UQHVWR Magud • Donato Masciandaro • Luljeta Minxhozi • Massimo Morelli • Francesco Passarelli • Antonio Spilimbergo • Piero Stanig • Alejandro M. Werner A joint publication with the Bocconi University DQG%$)),&$5(),1 Supported by SUERF – Société SUERF Universitaire Européenne Conference Proceedings de Recherches Financières 2020/1 Populism, Economic Policies and Central Banking POPULISM, ECONOMIC POLICIES AND CENTRAL BANKING Edited by Ernest Gnan and Donato Masciandaro Contributions by Itai Agur, Carola Binder, Cristina Bodea, Claudio Borio, Italo Colantone, Federico Favaretto, Ana Carolina Garriga, Stefan Gerlach, Ernest Gnan, Masaaki Higashijima, Ryszard Kokoszczyński, Joanna Mackiewicz-Łyziak, Nicolás Ernesto Magud, Donato Masciandaro, Luljeta Minxhozi, Massimo Morelli, Francesco Passarelli, Antonio Spilimbergo, Piero Stanig, Alejandro M. Werner A joint publication with the Bocconi University and BAFFI CAREFIN Supported by SUERF – The European Money and Finance Forum Vienna 2020 SUERF Conference Proceedings 2020/1 CIP Populism, Economic Policies and Central Banking Editors: Ernest Gnan and Donato Masciandaro Authors: Itai Agur, Carola Binder, Cristina Bodea, Claudio Borio, Italo Colantone, Ana Carolina Garriga, Stefan Gerlach, Ernest Gnan, Federico Favaretto, Masaaki Higashijima, Ryszard Kokoszczyński, Joanna Mackiewicz-Łyziak, Nicolás Ernesto Magud, Donato Masciandaro, Luljeta Minxhozi, Massimo Morelli, Francesco Passarelli, Antonio Spilimbergo, Piero Stanig, Alejandro M. Werner Keywords: Behavioural economics, Banking policy, Populism, Economic Policy, Central bank Independence, Financial Inequality, Political Economics, Political Economy, Fiscal policy, Populism, Latin America, Institutions. JEL-codes: D72, D78, E0, E31, E52, E58, E62, E71, N1, P16. SUERF/BAFFI CAREFIN Centre Conference Populism, Economic Policies and Central Banking, in Milan, 8 November 2019 ISBN: 978-3-902109-89-7 © 2020 SUERF, Vienna SUERF Conference Proceedings 2020/1 Copyright reserved. Subject to the exception provided for by law, no part of this publication may be reproduced and/or published in print, by photocopying, on microfilm or in any other way without the written consent of the copyright holder(s); the same applies to whole or partial adaptations. The publisher retains the sole right to collect from third parties fees payable in respect of copying and/or take legal or other action for this purpose. 1 TABLE OF CONTENTS List of authors . 5 A. Introduction and Overview 1. Populism, Economic Policies and Central Banking: an Overview . 8 Ernest Gnan and Donato Masciandaro 1.1. What is economic populism?. 8 1.2. Sources of populism: economic lines of reasoning . 12 1.3. How can economic policies counter populism? . 14 1.4. How may populism and central banking interact?. 15 1.5. Summary and conclusions . 20 References . 22 B. Populism and Economic Policies 2. Populism and Economics. 26 Stefan Gerlach 2.1. Introduction . 26 2.2. How has support for populism evolved over time? . 27 2.3. What might be driving these changes? . 30 2.4. What do populist economic policies look like? . 31 2.5. Tackling right-wing populism . 33 2.6. Conclusions. 34 References . 35 3. Populism and Inflation in Latin America . 37 Nicolás Ernesto Magud, Antonio Spilimbergo, Alejandro M. Werner References . 41 4. Psychological Motivations of Populist Vote. 42 Francesco Passarelli References . 49 larcier-intersentia TABLE OF CONTENTS 2 5. Populism, Psychology and Banking Policy . 51 Federico Favaretto and Donato Masciandaro 5.1. Introduction . 51 5.2. Literature review . 53 5.3. Banking crises, democratic rioting and bailout policies . 55 5.4. Conclusion . 59 References . 59 6. Globalization and Nationalism . 62 Italo Colantone and Piero Stanig 6.1. Introduction . 62 6.2. Economic nationalism and the radical right. 64 6.3. Measuring the impact of globalization: the China shock . 66 6.4. Voting in western Europe . 68 6.4.1. Results . 70 6.5. The Brexit vote . 73 6.5.1. Results . 74 6.6. The economy/culture nexus. 77 6.7. Conclusion . 79 References . 81 7. The Paradox of Endogenous Nationalism and the Role of Quantitative Easing . 84 Massimo Morelli 7.1. Introduction . 84 7.2. Shrinking structural fiscal space and political crisis . 86 7.3. Fiscal union desirability implications. 88 7.4. The nationalism trap . 89 7.5. Issue linkage ideas . 91 7.6. Conclusion . 92 References . 92 larcier-intersentia TABLE OF CONTENTS 3 C. Populism and Central Banking 8. Central Banking in Challenging Times . 96 Claudio Borio 8.1. Introduction . 96 8.2. The economic-cum-intellectual challenge. 99 8.3. The institutional challenge. 103 8.4. Suggestions for a way forward . 107 8.5. Conclusion . 113 References . 113 9. Populism, Institutional Quality, and Central Bank Independence . 121 Itai Agur 9.1. Populism and central bank independence . 121 9.2. Institutions and central bank independence. 126 References . 127 10. De Facto and De Jure Central Bank Independence . 129 Carola Binder 10.1. Measuring pressure on central banks. 129 10.2. Where and when does pressure occur? . 130 10.3. Political pressure and CBI: looking ahead . 134 References . 135 11. Heterogeneous Populism, Economic Policies and Central Bank Independence. 137 Donato Masciandaro and Francesco Passarelli 11.1. Introduction . 137 11.2. Citizens, macro shocks and economic policy options. 141 11.3. Citizen heterogeneity, economic policies, central bank independence and heterogeneous populism . 145 11.4. Conclusion . 147 References . 149 larcier-intersentia TABLE OF CONTENTS 4 12. Why populism is risking independence?. 156 Case of Albania Luljeta Minxhozi 12.1. The post-crisis policy experience in Albania . 157 12.2. Conclusions. 159 13. Central Bank Independence and the Fate of Authoritarian Regimes 161 Cristina Bodea, Ana Carolina Garriga and Masaaki Higashijima 13.1. Central bank independence in authoritarian regimes. 161 13.2. How can CBI constrain dictators. 165 13.3. Dominant party autocracies, CBI and fiscal policy limit . 167 13.4. Empirical findings . 169 13.5. Illustrations: Egypt and Mexico. 172 13.6. Conclusion . 174 13.7. References . 175 14. Central bank independence and inflation. 180 Ryszard Kokoszczyński and Joanna Mackiewicz-Łyziak 14.1. Introduction . 180 14.2. Is there a link between CBI and inflation? . 181 14.3. Measures of CBI for advanced and non-advanced economies 182 14.4. Empirical results on the CBI-inflation relationship . 185 14.5. Conclusions. 186 References . 186 SUERF – Société Universitaire Européenne de Recherches Financières . 189 SUERF Publications. 189 larcier-intersentia 5 LIST OF AUTHORS Itai Agur International Monetary Fund Carola Binder Haverford College Cristina Bodea Michigan State University Claudio Borio Bank for International Settlements Italo Colantone Bocconi University Ana Carolina Garriga University of Essex Federico Favaretto Boston College Stefan Gerlach EFG Bank and CEPR Ernest Gnan Oesterreichische Nationalbank and SUERF Masaaki Higashijima Tohoku University and University of Michigan Ryszard Kokoszczyński Narodowy Bank Polski and the University of Warsaw and SUERF Joanna Mackiewicz-Łyziak University of Warsaw Nicolás Ernesto Magud International Monetary Fund Donato Masciandaro Bocconi University and SUERF larcier-intersentia LIST OF AUTHORS 6 Luljeta Minxhozi Bank of Albania Massimo Morelli Bocconi University and CEPR Francesco Passarelli University of Turin and Bocconi University Antonio Spilimbergo International Monetary Fund Piero Stanig Bocconi University Alejandro M. Werner International Monetary Fund larcier-intersentia 7 A. INTRODUCTION AND OVERVIEW larcier-intersentia 8 1. POPULISM, ECONOMIC POLICIES AND CENTRAL BANKING: AN OVERVIEW Ernest Gnan and Donato Masciandaro1 There seems to be general agreement that “populism” has been on the rise over the past decade, and that it has implications for election outcomes and economic policies. Against this background, SUERF and the BAFFI CAREFIN Centre at Bocconi University brought together a group of experts for a one-day conference in Milano on 8 November 2019. The starting point for the project were three groups of questions: First, what is “economic populism”? Is it actually a new phenomenon? Is it confined to specific political camps? How would it be classified in more conventional economic categories? Second, what are the sources of the rise in populism? Can economic policies contribute to a rise or decline of the current rise of populism? Third, how could the rise of populism affect central banks? Conversely, can independent central banks make a difference in helping prevent or moderate economic populism? This article synthesizes major insights from the conference, embedding them in a broader overview of populism’s interactions with economic policies and central banking. Section 1.1 discusses what “economic populism” might mean, and proposes a comprehensive definition. Section 1.2 offers some economic lines of reasoning for the rise of populism. Section 1.3 summarizes some ways how economic policies may counter populism. Section 1.4 explores how populism and central banking may affect each other. Section 1.5 summarizes and concludes..
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