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How should large and small countries be represented in a currency union?

Helge Berger () and Till Müller

No 2004/20, Discussion Papers from Free University Berlin, School of Business & Economics

Abstract: The likely extension of the euro area has triggered a debate on the organization of the ECB, in particular on the apparent mismatch between relative economic size and voting rights in the Council. We present a simple model of optimal representation in a federal central bank addressing this question. Optimal voting weights reflect two opposing forces: the wish to insulate common monetary policy from changing preferences at the national level, and the attempt to avoid an overly active or passive reaction to idiosyncratic national economic shocks. A perfect match between economic size and voting rights is rarely optimal, and neither is the one country, one vote principle. Empirically, there are indications that the pattern of over- and under-representation of member countries in the ECB Council might be extreme by the standards of the US Fed and German Bundesbank and not always optimal.

Keywords: Central Bank; Federal Central Bank; currency union; optimal representation; voting; ECB (search for similar items in EconPapers)
JEL-codes: D72 E52 E58 F33 (search for similar items in EconPapers)
Date: 2004
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https://www.econstor.eu/bitstream/10419/49923/1/668836954.pdf (application/pdf)

Related works:
Journal Article: How should large and small countries be represented in a currency union? (2007) Downloads
Working Paper: How Should Large and Small Countries Be Represented in a Currency Union? (2004) Downloads
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