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Bargaining over monetary policy in a monetary union and the case for appointing an independent central banker

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  • Corinne Aaron-Cureau
  • Hubert Kempf

Abstract

We set up a model of a monetary union where decisions over monetary policy are made through bargaining between two governments with different objectives. They can either choose to directly bargain over monetary policy or to delegate monetary decisions to an independent central banker. In the latter case, the choice of the central banker is obtained by bargaining between the two governments. We show that, the bargaining power being constant, the delegation of monetary policy to an independent central banker does not necessarily incur a smaller inflation bias nor is systematically welfare improving for any government. It may happen that both governments are better-off when they directly bargain. Copyright 2006, Oxford University Press.

Suggested Citation

  • Corinne Aaron-Cureau & Hubert Kempf, 2006. "Bargaining over monetary policy in a monetary union and the case for appointing an independent central banker," Oxford Economic Papers, Oxford University Press, vol. 58(1), pages 1-27, January.
    • Handle: RePEc:oup:oxecpp:v:58:y:2006:i:1:p:1-27
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    File URL: http://hdl.handle.net/10.1093/oep/gpi044
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    Cited by:

    1. Saito, Yuta, 2025. "Exit expectations and the optimal design of a currency union," Economics Letters, Elsevier, vol. 247(C).
    2. Etienne Farvaque & Norimichi Matsueda, 2009. "Monetary Unions and External Shocks," Economics Bulletin, AccessEcon, vol. 29(2), pages 1483-1491.
    3. Yuta Saito, 2018. "Bargaining over Monetary Policy and Optimal Committee Composition in a Currency Union," Economics Bulletin, AccessEcon, vol. 38(4), pages 1986-1996.
    4. Yuta Saito, 2022. "A Note on Time Inconsistency and Endogenous Exits from a Currency Union," Games, MDPI, vol. 13(2), pages 1-8, February.
    5. Etienne Farvaque & Norimichi Matsueda, 2010. "On the Sustainability of a Monetary Union under External Shocks: a Theoretical Result and Its Application to the Gulf Countries," Discussion Paper Series 66, School of Economics, Kwansei Gakuin University, revised Dec 2010.
    6. H.J. Roelfsema, 2006. "Why are Federal Central Banks more Activist?," Working Papers 06-06, Utrecht School of Economics.
    7. Hubert KEMPF, 2006. "The Constitutional Treaty of the EU and the institutional framework," Departmental Working Papers 2006-05, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.

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