Equilibrium contracts for the central bank of a monetary union

We consider the political economy of a monetary union wheremember governments attempt to influence the policy of the commoncentral bank. Modeling this as a common agency with incentivecontracts, we show that if incentives are all that matters for the bank,the equilibrium implements a weighted average of the countries most preferred policy. We then argue that making the bank inflationaverse and/or attentive towards the countries economicdevelopments is undesirable in this context.