Games for Central Bankers: Markets v/s Politics in Public Policy Decisions

31 Pages Posted: 2 Dec 2000 Last revised: 8 Dec 2022

See all articles by Alessandra Casella

Alessandra Casella

Columbia University - Graduate School of Arts and Sciences, Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: December 2000

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 heterogenous 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 in principle they are useful in suggesting desirable amendments to traditional voting schemes.

Suggested Citation

Casella, Alessandra, Games for Central Bankers: Markets v/s Politics in Public Policy Decisions (December 2000). NBER Working Paper No. w8026, Available at SSRN: https://ssrn.com/abstract=252305

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