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The design of an asymmetric currency union with shock persistence and spillovers: Short-term versus medium-term

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  • Frey, Rainer

Abstract

We consider a central bank council made up of a central bank board that addresses aggregates of the currency area and a group of national central bank governors that are assumed to focus on their home economies. Relatively small member countries favour a situation where the group of national central bank governors has high voting shares, whereas large countries prefer decisions to be taken by the central bank board. With respect to output persistence, spillover effects also lessen the disadvantages of decisions taken by a central bank board for a relatively small country. Thus, international linkages reduce the significance of the design of the central bank council in a currency union. Furthermore, monetary policy decided by a short-term domestically-orientated governor of a small country may negatively affect the future welfare of the country.

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  • Frey, Rainer, 2009. "The design of an asymmetric currency union with shock persistence and spillovers: Short-term versus medium-term," European Journal of Political Economy, Elsevier, vol. 25(1), pages 85-97, March.
    • Handle: RePEc:eee:poleco:v:25:y:2009:i:1:p:85-97
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