Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/82015
Authors: 
Fatum, Rasmus
Year of Publication: 
2003
Series/Report no.: 
EPRU Working Paper Series 2003-19
Abstract: 
This paper employs a multi-country delegation model of a single monetary policy and argues that a decision making mechanism based on the median voter theorem is too restrictive for capturing important aspects of monetary policy in the European Monetary Union, particularly because intensity of preferences cannot play a role when only the median voter matters. Replacing the median voter mechanism by a less restrictive “weighted mean mechanism”, it is shown that strategic delegation leads to a single monetary policy set in accordance with the preferences of the most inflation-averse member state. This finding provides theoretical support for “The Twin Sister Hypothesis” and the perception of the European Central Bank implementing the policy of the Bundesbank rather than the policy of an average union-wide central bank.
Subjects: 
monetary policy
monetary union
median voter
strategic delegation
JEL: 
C72
D72
E58
F33
Document Type: 
Working Paper

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