Browsing by Subject "Central Bank Design"

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    Debt Spillovers in a Monetary Union: A Novel Rationale for Central Bank Independence
    (2022-01) Campoy Miñarro, J. C.; Negrete Mediavilla, J. C.; Fundamentos del Análisis Económico
    Central bank independence has been championed on the grounds that it avoids political business cycles, the time-inconsistency problem of discretionary monetary policy, and political conflicts. However, after the financial crisis, central banks have resorted to unconventional monetary policies and embraced additional tasks, making monetary authorities more exposed to political interference. This new reality has put into question the long-lasting consensus on the desirability of central bank independence. We add to this debate a new argument in support of that independence, namely, it internalizes the fiscal spillovers that arise in a monetary union, which is not a full fiscal union.
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    Quantitative easing rules as a means to achieve optimal levels of structural reforms and government deficits in a monetary union
    Campoy Miñarro, J. C.; Negrete Mediavilla, J. C.; Fundamentos del Análisis Económico
    This paper uses a tractable game theory model to study the interactions of structural reforms and fiscal and monetary policies in the European Monetary Union (EMU). Considering the externalities that arise when interest rates have hit the lower bound and monetary policy is carried out through quantitative easing (QE), we show that the subgame perfect equilibrium is suboptimal when structural reforms and fiscal policy are implemented at a national level. Then, we prove that the optimal outcome cannot be obtained if structural reforms are dictated by a supranational institution. By contrast, we establish that the first best can be obtained either by a full-fledged fiscal union or a rule on QE. Given the practical difficulties that the first of these two solutions have encountered in the EMU, a rule over QE provides a clear, easier and more credible way to make structural reforms and fiscal deficits achieve the levels that maximise the union's welfare.