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Reciprocity and Inflation in Federal Monetary Unions

Author

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  • von Hagen, Jürgen

Abstract

This paper presents a model of monetary policy-making in a federal monetary union. Central bank council members are representatives from the member states. In a repeated-game context, council members have an incentive to engage in strategic voting, trading political favours between each other. The paper shows that a reciprocity-equilibrium exists in the repeated bargaining game. Reciprocity induces a positive inflation bias and nominal fluctuations in the monetary union.

Suggested Citation

  • von Hagen, Jürgen, 1995. "Reciprocity and Inflation in Federal Monetary Unions," CEPR Discussion Papers 1297, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1297
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    Citations

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    Cited by:

    1. Ricci, Luca Antonio, 2008. "A Model of an Optimum Currency Area," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 2, pages 1-31.
    2. Monticelli, Carlo, 2003. "Voting on monetary policy in the Council of the European Central Bank," Economic Modelling, Elsevier, vol. 20(5), pages 1015-1051, September.

    More about this item

    Keywords

    Central Banks; Inflation; Monetary Union; Political Economy;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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