Reciprocity and Inflation in Federal Monetary Unions
AbstractThis paper presents a model of monetary policy-making in a federal monetary union. Central bank council members are representatives from the member states. In a repeated-game context, council members have an incentive to engage in strategic voting, trading political favours between each other. The paper shows that a reciprocity-equilibrium exists in the repeated bargaining game. Reciprocity induces a positive inflation bias and nominal fluctuations in the monetary union.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1297.
Date of creation: Nov 1995
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- Luca Antonio Ricci, 1997.
"A Model of an Optimum Currency Area,"
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