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Bargaining over Monetary Policy and Optimal Committee Composition in a Currency Union

Yuta Saito

Economics Bulletin, 2018, vol. 38, issue 4, 1986-1996

Abstract: Drawing on the Barro-Gordon framework, this paper investigates the design of the monetary policy committee in a currency union which implements the optimal time-consistent policy. The monetary policy is determined through Nash bargaining between member countries, where the outside options consist of non-cooperation within the union. It is shown that the member which experiences a higher output should have a greater bargaining power to reduce the inflationary bias. We also found that the richer member's optimal bargaining power, which induces the equilibrium policy time-consistent, is U-shaped with respect to the heterogeneity in the output shock.

Keywords: Inflationary Bias; Time-Inconsistency; Barro-Gordon; Monetary Union; Nash Bargaining (search for similar items in EconPapers)
JEL-codes: E5 F5 (search for similar items in EconPapers)
Date: 2018-10-30
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