One monetary policy and 18 central bankers: The European monetary policy as a game of strategic delegation |
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Authors: | Rasmus Fatum |
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Affiliation: | School of Business, 4-30H Business Building, University of Alberta, Edmonton AB, Canada T6G 2R6 |
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Abstract: | This paper employs a multi-country delegation monetary policy model and argues that a decision-making mechanism based on the median voter theorem where intensity of preferences cannot play a role does not capture important aspects of policy setting in the European Monetary Union. Replacing the median voter mechanism with a less restrictive “weighted mean mechanism”, it is shown that strategic delegation can lead to a surprising degree of central bank inflation aversion. This finding supports the “The Twin Sister Hypothesis” and the perception of the European Central Bank implementing the policy of the Bundesbank rather than a more inflationary monetary policy. |
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Keywords: | C72 D72 E58 F33 |
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