Reciprocity and Inflation in Federal Monetary Unions

Juergen von Hagen

No 1297, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper presents a model of monetary policy-making in a federal monetary union. Central bank council members are representatives from the member states. In a repeated-game context, council members have an incentive to engage in strategic voting, trading political favours between each other. The paper shows that a reciprocity-equilibrium exists in the repeated bargaining game. Reciprocity induces a positive inflation bias and nominal fluctuations in the monetary union.

Keywords: Central Banks; Inflation; Monetary Union; Political Economy (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 1995-11
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Citations: View citations in EconPapers (3)

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