Time Inconsistency and Free‐Riding in a Monetary Union

Varadarajan V. Chari and Patrick Kehoe

Journal of Money, Credit and Banking, 2008, vol. 40, issue 7, 1329-1356

Abstract: In monetary unions, a time inconsistency problem in monetary policy leads to a novel type of free‐rider problem in the setting of non‐monetary policies. The free‐rider problem leads union members to pursue lax non‐monetary policies that induce the monetary authority to generate high inflation. Free‐riding can be mitigated by imposing constraints on non‐monetary policies. Without a time inconsistency problem, the union has no free‐rider problem; then constraints on non‐monetary policies are unnecessary and possibly harmful. This theory is here detailed and applied to several non‐monetary policies: labor market policy, fiscal policy, and bank regulation.

Date: 2008
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https://doi.org/10.1111/j.1538-4616.2008.00162.x

Related works:
Working Paper: Time Inconsistency and Free-Riding in a Monetary Union (2010)
Journal Article: Time Inconsistency and Free-Riding in a Monetary Union (2008)
Working Paper: Time inconsistency and free-riding in a monetary union (2008)
Working Paper: Time Consistency and Free-Riding in a Monetary Union (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:40:y:2008:i:7:p:1329-1356

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