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...

All existing monetary unions centralise, to various degrees, specific social policy functions, notably functions that support economic stabilization, like unemployment insurance. The European Monetary Union features as the only exception. Compared to the United States, the European Monetary...