Bankers' versus Workers' Europe (I): Asymmetric Information in EMU
AbstractThe delegation of monetary policy to a supranational central bank creates a conflict of interest between residents of different countries. For example, the country in recession may favor more inflation to boost output, while the country in boom prefers exactly the opposite.This conflict gives rise to an adverse selection problem. Provided each government has private information about the current state of the economy, it may try to exploit it in order to shift the common monetary policy to his own preferred way. The paper shows that problems of this kind can generate both an inflation and primary deficit bias (in line with the worries of Workers' Europe addressed by the "stability pact") as well as an excess monetary discipline and recession bias (in line with the worries addressed by the Bankers' Europe concern).When information problems are particularly severe, monetary and fiscal policy becomes relatively insensitive to business cycle conditions, and too little "smoothing" is done over the business cycle.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 127.
Date of creation:
Date of revision:
Contact details of provider:
Postal: via Rontgen, 1 - 20136 Milano (Italy)
Web page: http://www.igier.unibocconi.it/
This paper has been announced in the following NEP Reports:
- NEP-ALL-1998-11-20 (All new papers)
- NEP-CDM-1998-11-20 (Collective Decision-Making)
- NEP-EEC-1998-11-20 (European Economics)
- NEP-MON-1998-11-20 (Monetary Economics)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Massimo Bordignon & Paolo Manasse & Guido Tabellini, 2001.
"Optimal Regional Redistribution under Asymmetric Information,"
American Economic Review,
American Economic Association, vol. 91(3), pages 709-723, June.
- Bordignon, Massimo & Manasse, Paolo & Tabellini, Guido, 1996. "Optimal Regional Redistribution Under Asymmetric Information," CEPR Discussion Papers 1437, C.E.P.R. Discussion Papers.
- Massimo Bordignon & Paolo Manasse & Guido Tabellini, . "Optimal Regional Redistribution Under Asymmetric Information," Working Papers 93, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.