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Monetary Politics in a Monetary Union: A Note on Common Agency with Rational Expectations

  • Michele Ruta

Is the politicisation of monetary policy in a currency union desirable? This paper shows that in a setting where political influence by national governments is modeled as a common agency game with rational expectations, the answer to this question crucially depends on whether the common central bank can commit to follow its policy.

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Paper provided by European University Institute in its series RSCAS Working Papers with number 2007/21.

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Date of creation: 28 Sep 2007
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Handle: RePEc:rsc:rsceui:2007/21
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Web page: http://www.eui.eu/RSCAS/

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  1. Alberto Alesina & Robert J. Barro, 2000. "Currency Unions," NBER Working Papers 7927, National Bureau of Economic Research, Inc.
  2. Torsten Persson & Guido Tabellini, . "Political Economics and Macroeconomic Policy," Working Papers 121, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  3. Persson, Torsten & Tabellini, Guido, 1999. "Political Economics and Public Finance," CEPR Discussion Papers 2235, C.E.P.R. Discussion Papers.
  4. Grossman, Gene & Helpman, Elhanan, 1993. "Protection for Sale," CEPR Discussion Papers 827, C.E.P.R. Discussion Papers.
  5. Silvana Tenreyro & Robert J. Barro, 2002. "Economic effects of currency unions," Working Papers 02-4, Federal Reserve Bank of Boston.
  6. Bennett T. McCallum, 1995. "Two Fallacies Concerning Central Bank Independence," NBER Working Papers 5075, National Bureau of Economic Research, Inc.
  7. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-67, March.
  8. Avinash Dixit & Henrik Jensen, 2003. "Common Agency with Rational Expectations: Theory and Application to a Monetary Union," Economic Journal, Royal Economic Society, vol. 113(489), pages 539-549, 07.
  9. Bernheim, B Douglas & Whinston, Michael D, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 1-31, February.
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