DP919 Central Bank Constitutions for Monetary Unions

Author(s):	Ralph Süppel, Jürgen von Hagen
Publication Date:	March 1994
Keyword(s):	Central Banks, Monetary Policy, Monetary Union
JEL(s):	E32, E52, E58, F36
Programme Areas:	International Macroeconomics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=919

Historical experience suggests that the distribution of monetary policy authority among the members of a monetary union is a key aspect of the design of a central bank constitution. We analyse alternative institutional solutions to that problem with different degrees of centralization of monetary policy decisions. The degree of centralization required to facilitate credible, low-inflation policies depends critically on the political structure of the monetary union. Efficient monetary stabilization requires centralized decision-making rules. Whether or not stabilization can be improved by adding central appointees to member state representatives on the central bank council depends on the stochastic structure of the relevant economic disturbances.