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A Repeated Game Model of Monetary Union

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Author Info
Dixit, Avinash

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Abstract

Given a policy rule of the common central bank of a monetary union, member countries with different preferences about inflation and facing asymmetric shocks have different incentives to secure political intervention in the bank's operation and achieve the temporary benefit of surprise inflation. This is modelled as a repeated game, and the most cooperative outcome subject to the countries' incentive compatibility constraints is found. The optimal rule responds flexibly to asymmetric shocks, adjusting policy away from the full commitment level toward the discretionary level, so as to maintain the worse-hit country's incentive to abide by the rule.

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Publisher Info
Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 110 (2000)
Issue (Month): 466 (October)
Pages: 759-80
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Handle: RePEc:ecj:econjl:v:110:y:2000:i:466:p:759-80

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  1. Giovanni Di Bartolomeo & Debora Di Gioacchino, 2005. "Fiscal-Monetary Policy Coordination And Debt Management: A Two Stage Dynamic Analysis," Macroeconomics 0504024, EconWPA. [Downloadable!]
  2. L. Bottazzi & P. Manasse, 2002. "Asymmetric Information and Monetary Policy in Common Currency Areas," Working Papers 444, Dipartimento Scienze Economiche, Università di Bologna. [Downloadable!]
    Other versions:
  3. Hughes Hallett, Andrew & Weymark, Diana, 2002. "Independence before Conservatism: Transparency, Politics and Central Bank Design," CEPR Discussion Papers 3336, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. Moïse Sidiropoulos & Eleftherios Spyromitros, 2006. "Fiscal Policy in a Monetary Union Under Alternative Labour-Market Structures," Working Papers of BETA 2006-25, Bureau d'Economie Théorique et Appliquée, ULP, Strasbourg. [Downloadable!]
  5. Carl E. Walsh, 2002. "Are contemporary central banks transparent about economic models and objectives and what difference does it make? - commentary," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 37-46. [Downloadable!]
  6. Avinash Dixit & Henrik Jensen, 2000. "Equilibrium Contracts for the Central Bank of a Monetary Union," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  7. Ritschl, Albrecht & Wolf, Nikolaus, 2003. "Endogeneity of Currency Areas and Trade Blocs: Evidence from the Inter-war Period," CEPR Discussion Papers 4112, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  8. Fidrmuc, Jarko, 2001. "The Endogeneity of optimum currency area criteria, intraindustry trade and EMU enlargement," BOFIT Discussion Papers 8/2001, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
  9. Alessandra Casella, 2000. "Games for Central Bankers: Markets v/s Politics in Public Policy Decisions," NBER Working Papers 8026, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Sibert, Anne, 2006. "Is Central Bank Transparency Desirable?," CEPR Discussion Papers 5641, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  11. Etienne B. Yehoue, 2004. "Currency Bloc Formation as a Dynamic Process Based on Trade Network Externalities," IMF Working Papers 04/222, International Monetary Fund. [Downloadable!]
  12. Jarko Fidrmuc, 2001. "The Endogeneity of the Optimum Currency Area Criteria, Intraindustry Trade, and EMU Enlargement," LICOS Discussion Papers 10601, LICOS - Centre for Institutions and Economic Performance, K.U.Leuven. [Downloadable!]
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  13. Ullrich, Katrin, 2006. "An impact of country-specific economic developments on ECB decisions," ZEW Discussion Papers 06-49, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  14. Bas van Aarle & Giovanni Di Bartolomeo & Jacob Engwerda & Joseph Plasmans, 2002. "Monetary and Fiscal Policy Design in the EMU: An Overview," Open Economies Review, Springer, vol. 13(4), pages 321-340, October. [Downloadable!] (restricted)
  15. Casella, Alessandra, 2000. "Games for Central Bankers: Markets vs. Politics in Public Policy Decisions," CEPR Discussion Papers 2496, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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