One Monetary Policy and Eighteen Central Bankers: The European Monetary Policy as a Game of Strategic Delegation
Journal of Monetary Economics, Vol. 53, Issue 4, 2006
University of Alberta School of Business Research Paper No. 2013-354
Posted: 7 May 2005 Last revised: 7 Jun 2013
There are 2 versions of this paper
One Monetary Policy and Eighteen Central Bankers: The European Monetary Policy as a Game of Strategic Delegation
One Monetary Policy and Eighteen Central Bankers: The European Monetary Policy as a Game of Strategic Delegation
Date Written: 2005
Abstract
This paper employs a multi-country delegation monetary policy model and argues that a decision making mechanism based on the median voter theorem where intensity of preferences cannot play a role does not capture important aspects of policy-setting in the European Monetary Union. Replacing the median voter mechanism with a less restrictive "weighted mean mechanism", it is shown that strategic delegation can lead to a surprising degree of central bank inflation aversion. This finding supports the "The Twin Sister Hypothesis" and the perception of the European Central Bank implementing the policy of the Bundesbank rather than a more inflationary monetary policy.
Keywords: Monetary Union, decision-making, strategic delegation
JEL Classification: C72, D72, E58, F33
Suggested Citation: Suggested Citation
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