One Monetary Policy and Eighteen Central Bankers: The European Monetary Policy as a Game of Strategic Delegation
AbstractThis paper employs a multi-country delegation model of a single monetary policy and argues that a decision making mechanism based on the median voter theorem is too restrictive for capturing important aspects of monetary policy in the European Monetary Union, particularly because intensity of preferences cannot play a role when only the median voter matters. Replacing the median voter mechanism by a less restrictive “weighted mean mechanism”, it is shown that strategic delegation leads to a single monetary policy set in accordance with the preferences of the most inflation-averse member state. This finding provides theoretical support for “The Twin Sister Hypothesis” and the perception of the European Central Bank implementing the policy of the Bundesbank rather than the policy of an average union-wide central bank.
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Bibliographic InfoPaper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 03-19.
Length: 25 pages
Date of creation: May 2003
Date of revision:
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monetary policy; monetary union; median voter; strategic delegation;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-12-07 (All new papers)
- NEP-CBA-2003-12-07 (Central Banking)
- NEP-EEC-2003-12-07 (European Economics)
- NEP-IFN-2003-12-07 (International Finance)
- NEP-MAC-2003-12-07 (Macroeconomics)
- NEP-MON-2003-12-07 (Monetary Economics)
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- Jose Ripoll, 2003. "National Appointments to Multinational Monetary Policy Making: A Role Conflict?," Macroeconomics 0301009, EconWPA.
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