What is the Optimal Institutional Arrangement for a Monetary Union?

Leonardo Gambacorta

No 356, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: The aim of this paper is to design the optimal institutional arrangement for a monetary union. Using a two-country rational expectations model, the study analyses how the conservatism of the area-wide central bank and the penalty system for fiscal deviation (Stability and Growth Pact) should be designed with respect to different economic shocks. The optimal institutional arrangement is also dependent on who is the "leader" of the policy game. When national governments move first, the independent area-wide central bank can exercise greater discipline over national fiscal policies, making the Stability Pact unnecessary.

Keywords: monetary union; Stability Pact; monetary policy; fiscal policy (search for similar items in EconPapers)
JEL-codes: E58 E63 F42 (search for similar items in EconPapers)
Date: 1999-06
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Citations: View citations in EconPapers (1)

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Working Paper: What Is the Optimal Institutional Arrangement for a Monetary Union? (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_356_99

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