The Choice of 'Conservative' Bankers in Open Economies: Monetary Regime Options for Europe
AbstractThat governments should delegate the operation of monetary policy to independent central banks is widely advocated. For a closed economy, the optimal choice results in a banker who is more conservative than the representative government, assigning a lower weight on output in her welfare function, but not overconservative, thereby allowing monetary policy to adjust to shocks. However, for open economies, the exchange rate externality results in an inefficient Nash equilibrium to this 'delegation game.' Monetary union or cooperation in the optimal choice of banker can internalize the externality. These options are assessed under symmetric and asymmetric shocks assuming different levels of fiscal transfers. Copyright 1996 by Royal Economic Society.
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Bibliographic InfoArticle provided by Royal Economic Society in its journal The Economic Journal.
Volume (Year): 106 (1996)
Issue (Month): 435 (March)
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- Paul Levine & Joseph Pearlman, 2002. "Delegation and Fiscal Policy in the Open Economy: More Bad News for Rogoff's Delegation Game," Open Economies Review, Springer, vol. 13(2), pages 153-174, April.
- Spagnolo, G., 1999. "Issue Linkage, Delegation, and International Policy Cooperation," Cambridge Working Papers in Economics 9913, Faculty of Economics, University of Cambridge.
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