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The Stability Properties of Monetary Constitutions

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  • Paniagua Pablo

    (Political Economy, King’s College London, London, UK)

Abstract

The financial crisis brought about a higher degree of monetary policy unpredictability. To anchor expectations and promote nominal stability, there is a need for predictable monetary rules or stable constitutions. This paper’s purpose is to define the general expectational properties that monetary constitutions should possess to work as coordination devices. I use Buchanan’s predictability criterion, as well as the expectational monetary transmission mechanism, to propose that monetary constitutions should be considered stable as long as they contain dynamics allowing self-reinforcing expectations of monetary neutrality. Self-reinforcement of expectations is an integral property of monetary constitutions for them to be agents of coordination and therefore stable. I find that these expectational properties are consistent with the stability properties established in the constitutional literature.

Suggested Citation

  • Paniagua Pablo, 2016. "The Stability Properties of Monetary Constitutions," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 22(2), pages 113-138, December.
    • Handle: RePEc:bpj:jeehcn:v:22:y:2016:i:2:p:113-138:n:2
    DOI: 10.1515/jeeh-2015-0011
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