Majority voting may not rule (in monetary unions): A comment on Matsen and Røisland [Eur. J. Political Economy 21 (2005) 365-384]

Pierre-Guillaume Méon

European Journal of Political Economy, 2008, vol. 24, issue 1, pages 269-279

Abstract: This note reconsiders the results obtained by Matsen and Røisland [Eur. J. Political Economy 21 (2005) 365-384] by dropping the simplifying assumption that the median of country-specific shocks is equal to their mean. Majority voting then increases the volatility of the chosen interest rate without giving member countries a sufficient probability of having their domestic shocks absorbed by the common monetary policy. It thus results in lower welfare than other decision rules. When the variances of domestic shocks sufficiently differ, voting may however reduce the volatility of the interest rate and raise welfare in more stable countries.

Date: 2008

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Persistent link: http://EconPapers.repec.org/RePEc:eee:poleco:v:24:y:2008:i:1:p:269-279

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