Time inconsistency and free-riding in a monetary union
By: V. V. Chari and Patrick J. Kehoe.
Contributors: Kehoe, Patrick J.
Series: Federal Reserve Bank of Minneapolis, Research Department staff report ;; 308; Staff report (Federal Reserve Bank of Minneapolis. Research Dept. : Online) ;; 308.
Publisher: Federal Reserve Bank of Minneapolis
Published: 2002
Place of publication: [Minneapolis, Minn.]
Language: eng
Format: Electronic resource
Subjects: Monetary unions.
Description: "We analyze the setting of monetary and nonmonetary policies in monetary unions. We show that in these unions a time inconsistency problem in monetary policy leads to a novel type of free-rider problem in the setting of nonmonetary policies, such as labor market policy, fiscal policy, and bank regulation.The free-rider problem leads the union's members to pursue lax nonmonetary policies that induce the monetary authority to generate high inflation.The free-rider problem can be mitigated by imposing constraints on the nonmonetary policies, like unionwide rules on labor market policy, debt constraints on members' fiscal policy, and unionwide regulation of banks.When there is no time inconsistency problem, there is no free-rider problem, and constraints on nonmonetary policies are unnecessary and possibly harmful"--Federal Reserve Bank of Minneapolis web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 1/15/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.