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Games for Central Bankers: Markets v/s Politics in Public Policy Decisions

  • Alessandra Casella

This paper questions the link between the establishment of a common currency among several countries and the necessity of political coordination. It begins by discussing why conducting a single monetary policy is thought to be easier within a single political unit. It then proceeds to enquire whether market mechanisms could be used to choose optimally the common policy of heterogenous actors, and thus provide an alternative to political decision-making. The advantage of market mechanisms is that they are transparent, predictable, and usually more efficient. In particular, the paper studies a simple game through which national representatives could choose the monetary policy of a single, multinational central bank. There are no fundamental logical objections or impossible practical obstacles to such market games, and even if they are rejected in principle they are useful in suggesting desirable amendments to traditional voting schemes.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8026.

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Date of creation: Dec 2000
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Handle: RePEc:nbr:nberwo:8026
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