IDEAS home Printed from
   My bibliography  Save this paper

Bargaining for the Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model


  • Klein, Martin


This paper focuses on two questions. First, under what conditions would two countries agree to hold their bilateral cross exchange rate fixed? and second, what allocation of intervention duties would this require? Answers to these questions are sought by combining a standard macroeconomic model of an open economy with the solution concepts of fixed-threat bargaining games. It is shown that for reasonable parameter values the core of the bargaining game implied by this set-up is non-empty, so that an agreed-upon and mutually beneficial allocation of intervention duties exists. Conditions for the non-emptiness of the core as well as the properties of the Nash solution are discussed and the results are used to characterize the difference between a monetary union and a fixed exchange rate regime. It is argued that a fixed exchange rate system in which the bargaining solution requires an asymmetric allocation of intervention duties cannot be an intermediate phase in the transition towards a monetary union.

Suggested Citation

  • Klein, Martin, 1991. "Bargaining for the Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," CEPR Discussion Papers 553, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:553

    Download full text from publisher

    File URL:
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at

    As the access to this document is restricted, you may want to search for a different version of it.


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Carrera, Jorge Eduardo, 1995. "Efectos precio y comercio en un area monetaria asimetrica
      [Price and trade effects in an asymmetric monetary area]
      ," MPRA Paper 7844, University Library of Munich, Germany.


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:553. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.