Is There a Self-Enforcing Monetary Constitution?
33 Pages Posted: 4 May 2013 Last revised: 16 Aug 2014
Date Written: March 25, 2014
A self-enforcing monetary constitution has rules that agents acting within the system will uphold even in the presence of deviations from ideal knowledge and complete benevolence and it thus does not require external enforcement. What would such a constitution look like? Such a constitution, I show that two regimes — a version of NGDP targeting that relies on market implementation of monetary policy, and free banking — meet these requirements for self-enforcing monetary constitutions. The analysis draws insights from political economy, and from constitutional political economy in particular.
Keywords: Central banking, constitutional political economy, free banking, monetary constitution, NGDP targeting, robust political economy
JEL Classification: B53, E42, E52, P16
Suggested Citation: Suggested Citation