Abstract
In monetary unions, a time inconsistency problem in monetary policy leads to a novel type of free-rider problem in the setting of non-monetary policies. The free-rider problem leads union members to pursue lax non-monetary policies that induce the monetary authority to generate high inflation. Free-riding can be mitigated by imposing constraints on non-monetary policies. Without a time inconsistency problem, the union has no free-rider problem; then constraints on non-monetary policies are unnecessary and possibly harmful. This theory is here detailed and applied to several non-monetary policies: labor market policy, fiscal policy, and bank regulation.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 1329-1355 |
| Number of pages | 27 |
| Journal | Journal of Money, Credit and Banking |
| Volume | 40 |
| Issue number | 7 |
| DOIs | |
| State | Published - Oct 1 2008 |
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Keywords
- Dollarization
- European Union
- Fixed exchange rates
- Maastricht Treaty
- Monetary regime
Cite this
Time inconsistency and free-riding in a monetary union. / Chari, Varadarajan V.; Kehoe, Patrick J.
In: Journal of Money, Credit and Banking, Vol. 40, No. 7, 01.10.2008, p. 1329-1355.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Time inconsistency and free-riding in a monetary union
AU - Chari, Varadarajan V.
AU - Kehoe, Patrick J.
PY - 2008/10/1
Y1 - 2008/10/1
N2 - In monetary unions, a time inconsistency problem in monetary policy leads to a novel type of free-rider problem in the setting of non-monetary policies. The free-rider problem leads union members to pursue lax non-monetary policies that induce the monetary authority to generate high inflation. Free-riding can be mitigated by imposing constraints on non-monetary policies. Without a time inconsistency problem, the union has no free-rider problem; then constraints on non-monetary policies are unnecessary and possibly harmful. This theory is here detailed and applied to several non-monetary policies: labor market policy, fiscal policy, and bank regulation.
AB - In monetary unions, a time inconsistency problem in monetary policy leads to a novel type of free-rider problem in the setting of non-monetary policies. The free-rider problem leads union members to pursue lax non-monetary policies that induce the monetary authority to generate high inflation. Free-riding can be mitigated by imposing constraints on non-monetary policies. Without a time inconsistency problem, the union has no free-rider problem; then constraints on non-monetary policies are unnecessary and possibly harmful. This theory is here detailed and applied to several non-monetary policies: labor market policy, fiscal policy, and bank regulation.
KW - Dollarization
KW - European Union
KW - Fixed exchange rates
KW - Maastricht Treaty
KW - Monetary regime
UR - http://www.scopus.com/inward/record.url?scp=52649120350&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=52649120350&partnerID=8YFLogxK
U2 - 10.1111/j.1538-4616.2008.00162.x
DO - 10.1111/j.1538-4616.2008.00162.x
M3 - Article
AN - SCOPUS:52649120350
VL - 40
SP - 1329
EP - 1355
JO - Journal of Money, Credit and Banking
JF - Journal of Money, Credit and Banking
SN - 0022-2879
IS - 7
ER -