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Discussion Paper Details

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Title: Reciprocity and Inflation in Federal Monetary Unions

Author(s): Jürgen von Hagen

Publication Date: November 1995

Keyword(s): Central Banks, Inflation, Monetary Union and Political Economy

Programme Area(s): International Macroeconomics

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.

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Bibliographic Reference

von Hagen, J. 1995. 'Reciprocity and Inflation in Federal Monetary Unions'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1297