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Apr 16

Populist Politics in Monetary Policy

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Article: www.foerignaffairs.com/articles/world/2017-21-06/bring-politics-back-monetary-policy

 

This article by Jaquelin Best examines the roles that the new wave of populist politics plays in the evolution in the role of global central banks. She begins by framing the current role of central banks in terms of their common historical mandate. In the past central banks were tasked with controling inflation however in the aftermath of the global financial crisis, central banks have been ever frequently challeneged with too little inflation and therefore they have begun to resort to more novel tecniques such as TARP in the United States. At the same time the Western World has seen a rise in populist and far right politics that emphesis the people's control over government. As apolitical institutions central banks are often the target of cristicism by populist politicans and this has become more pronounced in the recent climate of increased populism and increased central bank activity. She also explains the ways through which the technocratic central banks have become sucepatiable to political pressures of their own. In such isolated communites internal dissent and "polictial" divides can create sub-optimal policy outcomes.

 

The balancing act bettween domestic policits and independent central banks demonstrated by Best is an example of the concepts of the state's role in monetary affairs explained by Jose Fernandez-Albertos. States must accept a certain loss of autonomy in order to maintain stability in their monetary systems however this becomes particularly difficult when leaders are held directly respnsible for economic performance at the ballot box. Populist leaders are especially suceptable to these pressures and they are therfore far more ciritcal of central banks. They want central bankers to pursue expansionary politics while they are in power in order to produce short-term growth even if this is not best for the economy in the long term. In this balancing act lies the great chasim bettween politicans and central bankers.

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