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One Monetary Policy and Eighteen Central Bankers: The European Monetary Policy as a Game of Strategic Delegation

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  • Rasmus Fatum

    (University of Alberta)

Abstract

This paper employs a multi-country delegation model of a single monetary policy and argues that a decision making mechanism based on the median voter theorem is too restrictive for capturing important aspects of monetary policy in the European Monetary Union, particularly because intensity of preferences cannot play a role when only the median voter matters. Replacing the median voter mechanism by a less restrictive “weighted mean mechanism”, it is shown that strategic delegation leads to a single monetary policy set in accordance with the preferences of the most inflation-averse member state. This finding provides theoretical support for “The Twin Sister Hypothesis” and the perception of the European Central Bank implementing the policy of the Bundesbank rather than the policy of an average union-wide central bank.

Suggested Citation

  • Rasmus Fatum, 2003. "One Monetary Policy and Eighteen Central Bankers: The European Monetary Policy as a Game of Strategic Delegation," EPRU Working Paper Series 03-19, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:epruwp:03-19
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    File URL: http://web.econ.ku.dk/epru/files/wp/wp-03-19.pdf
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    References listed on IDEAS

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    7. Waller, Christopher J., 1992. "A bargaining model of partisan appointments to the central bank," Journal of Monetary Economics, Elsevier, vol. 29(3), pages 411-428, June.
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    Cited by:

    1. Jose Ripoll, 2003. "National Appointments to Multinational Monetary Policy Making: A Role Conflict?," Macroeconomics 0301009, University Library of Munich, Germany.

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    More about this item

    Keywords

    monetary policy; monetary union; median voter; strategic delegation;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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