Citation

Discussion Paper Details

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Title: Games for Central Bankers: Markets vs. Politics in Public Policy Decisions

Author(s): Alessandra Casella

Publication Date: July 2000

Keyword(s): European Central Bank, European Monetary Union, Policy Coordination and Public Goods

Programme Area(s): International Macroeconomics and Public Economics

Abstract: This paper questions the link between the establishment of a common currency among several countries and the necessity of political coordination. It begins by discussing why conducting a single monetary policy is thought to be easier within a single political unit. It then proceeds to enquire whether market mechanisms could be used to choose optimally the common policy of heterogeneous actors, and thus provide an alternative to political decision-making. The advantage of market mechanisms is that they are transparent, predictable, and usually more efficient. In particular, the paper studies a simple game through which national representatives could choose the monetary policy of a single, multinational central bank. There are no fundamental logical objections or impossible practical obstacles to such market games, and even if they are rejected on principle, they are useful in suggesting desirable amendments to traditional voting schemes.

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Bibliographic Reference

Casella, A. 2000. 'Games for Central Bankers: Markets vs. Politics in Public Policy Decisions'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2496