The Stability Properties of Monetary Constitutions

Paniagua Pablo ()
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Paniagua Pablo: Political Economy, King’s College London, London, UK

Journal des Economistes et des Etudes Humaines, 2016, vol. 22, issue 2, 113-138

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.

Keywords: constitutional political economy; monetary policy; monetary constitution; robust political economy (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1515/jeeh-2015-0011

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