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...

We consider the political economy of a monetary union where member governments attempt to influence the policy of the common central bank. Modeling this as a common agency with incentive contracts, we show that if incentives are all that matters for the bank, the equilibrium implements a...

We consider the interaction between monetary and fiscal policies, in one country and in a monetary union. In a Nash equilibrium, at least one of the outcomes (output and inflation) are more extreme than the ideal points of both policy authorities. We allow very general stochastic shocks to the...