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The Future of the Euro : A Public Choice Perspective

  • Vaubel, Roland

Public choice analysis can be helpful in predicting the course of European monetary integration and policy. The median (or decisive) voter theorem, the theory of the political business cycle and the economic theory of bureaucracy are all applicable. The purpose of this paper is to explain and predict the behaviour of the European Central Bank (ECB) and the Council of Ministers on the basis of the available empirical evidence. Section 2 relies on the median voter theorem to derive predictions for the inflation rate of the euro. It shows that inflation rates have to be explained by the voters' sensitivity to inflation rather than the independence of central bankers and that the French members of the ECB Council hold the median position in terms of past inflation, voters' sensitivity to inflation and predicted or simulated preferred inflation. However, if the historical real exchange rate change is extrapolated and if failure to agree on an Executive Board is considered a possibility, the Belgian member of the ECB Council is the inflation median.

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Paper provided by Institut fuer Volkswirtschaftslehre und Statistik, Abteilung fuer Volkswirtschaftslehre in its series Discussion Papers with number 570.

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Date of creation: 1999
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Handle: RePEc:mnh:vpaper:1041
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  1. Agnès Bénassy-Quéré & Benoît Mojon, 1998. "EMU and Transatlantic Exchange Rate Stability," Working Papers 1998-02, CEPII research center.
  2. Vaubel, Roland, 1978. "Real exchange-rate changes in the European community : A new approach to the determination of optimum currency areas," Journal of International Economics, Elsevier, vol. 8(2), pages 319-339, May.
  3. Feist, Holger & Sinn, Hans-Werner, 1997. "Eurowinners and Eurolosers: The Distribution of Seigniorage Wealth in EMU," CEPR Discussion Papers 1747, C.E.P.R. Discussion Papers.
  4. Romer, David, 1993. "Openness and Inflation: Theory and Evidence," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 869-903, November.
  5. Aksoy, Yunus & De Grauwe, Paul & Dewachter, Hans, 1999. "The European Central Bank: Decision Rules and Macroeconomic Performance," CEPR Discussion Papers 2067, C.E.P.R. Discussion Papers.
  6. Marta Campillo & Jeffrey A. Miron, 1997. "Why Does Inflation Differ across Countries?," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 335-362 National Bureau of Economic Research, Inc.
  7. Adam Posen, 1995. "Central bank independence and disinflationary credibility: a missing link?," Staff Reports 1, Federal Reserve Bank of New York.
  8. Hayo, Bernd, 1998. "Inflation culture, central bank independence and price stability," European Journal of Political Economy, Elsevier, vol. 14(2), pages 241-263, May.
  9. Iversen, Torben, 1999. " The Political Economy of Inflation: Bargaining Structure or Central Bank Independence? Erratum," Public Choice, Springer, vol. 101(3-4), pages 285-306, December.
  10. Masciandaro, Donato & Spinelli, Franco, 1994. "Central Banks' Independence: Institutional Determinants, Rankings and Central Bankers' Views," Scottish Journal of Political Economy, Scottish Economic Society, vol. 41(4), pages 434-43, November.
  11. Iversen, Torben, 1999. " The Political Economy of Inflation: Bargaining Structure or Central Bank Independence?," Public Choice, Springer, vol. 99(3-4), pages 237-58, June.
  12. Oatley, Thomas, 1999. " Central Bank Independence and Inflation: Corporatism, Partisanship, and Alternative Indices of Central Bank Independence," Public Choice, Springer, vol. 98(3-4), pages 399-413, March.
  13. Vaubel, Roland, 1997. "Reply to Berger and Woitek," European Journal of Political Economy, Elsevier, vol. 13(4), pages 823-827, December.
  14. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
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