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The Future of the Euro : A Public Choice Perspective

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  • Vaubel, Roland

Abstract

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.

Suggested Citation

  • Vaubel, Roland, 1999. "The Future of the Euro : A Public Choice Perspective," Discussion Papers 570, Institut fuer Volkswirtschaftslehre und Statistik, Abteilung fuer Volkswirtschaftslehre.
  • Handle: RePEc:mnh:vpaper:1041
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    File URL: https://ub-madoc.bib.uni-mannheim.de/1041/1/570.pdf
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    1. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1169-1189.
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    5. Posen, Adam, 1998. "Central Bank Independence and Disinflationary Credibility: A Missing Link?," Oxford Economic Papers, Oxford University Press, vol. 50(3), pages 335-359, July.
    6. 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.
    7. 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.
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    10. David Romer, 1993. "Openness and Inflation: Theory and Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 108(4), pages 869-903.
    11. Vaubel, Roland, 1997. "Reply to Berger and Woitek," European Journal of Political Economy, Elsevier, vol. 13(4), pages 823-827, December.
    12. Hayo, Bernd, 1998. "Inflation culture, central bank independence and price stability," European Journal of Political Economy, Elsevier, vol. 14(2), pages 241-263, May.
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    Cited by:

    1. Iikka Korhonen & Mare Randveer, 2015. "Assessment of the Euros's implications for European economic development," Bank of Estonia Working Papers wp2000-02, Bank of Estonia, revised 03 Feb 2015.
    2. Angeloni, Ignazio, 1999. "The role of a regional bank in a system of central banks : A comment," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 51(1), pages 73-77, December.
    3. Sell, Friedrich L., 1999. "Die EWWU als Club: Positive und normative Implikationen für den Beitritt mittel- und osteuropäischer Reformstaaten ; Beitrag für den Projektbericht: Währungspolitische Optionen für die mittel- und ost," Working Papers in Economics 1999,4, Bundeswehr University Munich, Economic Research Group.
    4. Schweickert, Rainer, 2001. "Assessing the advantages of EMU-enlargement for the EU and the accession countries: a comparative indicator approach," Kiel Working Papers 1080, Kiel Institute for the World Economy (IfW).
    5. Maier, Philipp & Bezoen, Saskia, 2004. "Bashing and supporting central banks: the Bundesbank and the European Central Bank," European Journal of Political Economy, Elsevier, vol. 20(4), pages 923-939, November.
    6. Christian Fahrholz & Philipp Mohl, 2004. "EMU-enlargement and the Reshaping of Decision-making within the ECB Governing Council: A Voting-Power Analysis," Eastward Enlargement of the Euro-zone Working Papers wp23, Free University Berlin, Jean Monnet Centre of Excellence, revised 01 Jun 2004.

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