Abstract
We present a simple model of optimal representation in a federal central bank that balances two opposing forces: the wish to insulate common monetary policy from changing preferences at the national level, and the attempt to avoid an overly active or passive reaction to idiosyncratic national economic shocks. A perfect match between economic size and voting rights is rarely optimal, and neither is the “one country, one vote principle”. There are indications that the pattern of over- and under-representation of member countries in the ECB Council might be extreme.
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An extended version of the paper is available in Berger and Mueller (2004).
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Berger, H., Mueller, T. How should large and small countries be represented in a currency union?. Public Choice 132, 471–484 (2007). https://doi.org/10.1007/s11127-007-9173-x
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DOI: https://doi.org/10.1007/s11127-007-9173-x