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

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Author Info
Casella, Alessandra

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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;

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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

References listed on IDEAS
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    Other versions:
  2. Rudiger Dornbusch & Carlo A. Favero & Francesco Giavazzi, 1998. "The Immediate Challenges for the European Central Bank," NBER Working Papers 6369, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. von Hagen, Jurgen, 1999. "Money growth targeting by the Bundesbank," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 681-701, June. [Downloadable!] (restricted)
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    Other versions:
  14. Willem H. Buiter, 1999. "Alice in Euroland," Journal of Common Market Studies, Blackwell Publishing, vol. 37(2), pages 181-209, 06. [Downloadable!] (restricted)
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  16. Dixit, Avinash, 2000. "A Repeated Game Model of Monetary Union," Economic Journal, Royal Economic Society, vol. 110(466), pages 759-80, October. [Downloadable!] (restricted)
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  18. Bayoumi, Tamim & Masson, Paul R., 1995. "Fiscal flows in the United States and Canada: Lessons for monetary union in Europe," European Economic Review, Elsevier, vol. 39(2), pages 253-274, February. [Downloadable!] (restricted)
    Other versions:
  19. Hal R. Varian, 1994. "A Solution to the Problem of Externalities when Agents are Well-Informed}," Microeconomics 9401003, EconWPA. [Downloadable!]
    Other versions:
  20. Theodore Groves & John O. Ledyard, 1976. "Some Limitations of Demand Revealing Processes," Discussion Papers 219, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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    Other versions:
  22. W.H. Buiter, 1999. "Alice in Euroland," CEP Discussion Papers dp0423, Centre for Economic Performance, LSE. [Downloadable!]
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  25. Anil K. Kashyap & Jeremy C. Stein, 1997. "The role of banks in monetary policy: a survey with implications for the European Monetary Union," Economic Perspectives, Federal Reserve Bank of Chicago, issue Sep, pages 2-18. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ansgar Belke & Dirk Kruwinnus, 2003. "Erweiterung der EU und Reform des EZB-Rats: Rotation versus Delegation," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 218/2003, Department of Economics, University of Hohenheim, Germany. [Downloadable!]
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