This paper analyses the interaction between decisions on monetary policy in the future European Central Bank and different voting mechanisms. Using a simple stochastic model for preferences over monetary policy it is shown that the voting mechanism described in the actual statute leads to inefficient outcomes. The paper shows as well that the inefficiency can be resolved by allowing for sidepayments. The optimal monetary policy can be implemented by a noncooperative bargaining game.
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Paper provided by European University Institute in its series Economics Working Papers with number
eco97/29.
Length: 41 pages Date of creation: 1997 Date of revision: Handle: RePEc:eui:euiwps:eco97/29
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Find related papers by JEL classification: E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General F15 - International Economics - - Trade - - - Economic Integration