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Games for Central Bankers: Markets vs. Politics in Public Policy Decisions

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Author Info
Casella, Alessandra
Abstract

This paper questions the link between the establishment of a common currency among several countries and the necessity of political coordination. It begins by discussing why conducting a single monetary policy is thought to be easier within a single political unit. It then proceeds to enquire whether market mechanisms could be used to choose optimally the common policy of heterogeneous actors, and thus provide an alternative to political decision-making. The advantage of market mechanisms is that they are transparent, predictable, and usually more efficient. In particular, the paper studies a simple game through which national representatives could choose the monetary policy of a single, multinational central bank. There are no fundamental logical objections or impossible practical obstacles to such market games, and even if they are rejected on principle, they are useful in suggesting desirable amendments to traditional voting schemes.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2496.

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Date of creation: Jul 2000
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Handle: RePEc:cpr:ceprdp:2496

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Related research
Keywords: European Central Bank European Monetary Union Policy Coordination Public Goods

Find related papers by JEL classification:
D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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  18. Favero, Carlo A & Flabbi, Luca & Giavazzi, Francesco, 1999. "The Transmission Mechanism of Monetary Policy in Europe: Evidence from Banks' Balance Sheets," CEPR Discussion Papers 2303, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  19. Bagnoli, Mark & Lipman, Barton L, 1989. "Provision of Public Goods: Fully Implementing the Core through Private Contributions," Review of Economic Studies, Blackwell Publishing, vol. 56(4), pages 583-601, October. [Downloadable!] (restricted)
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