The ECB and Euro-Area Enlargement

Berger, Helge

doi:10.5089/9781451858761.001

Cited by 33 publications

(55 citation statements)

References 27 publications

(19 reference statements)

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“…Allowing for ' 1 ; 2 6 = 0 but otherwise following the same steps as before, we …nd that the optimal weight for country 1 resembles (8), except for additional (additive) terms involving the cross-country covariance of economic shocks, ' 1 ; 2 1 2 . In fact, the condition determining whether a country will be optimally over-or under-represented compared to its economic weight is identical to (9) in the no-correlation case. This generalizes and strengthens the baseline …ndings.…”

Section: Correlated Economic Shocksmentioning

confidence: 90%

“…Under-representation, on the other hand, is more likely to be optimal for larger countries with rel-atively volatile preferences. This becomes even clearer if we rewrite (9) to highlight the tension between economic size and relative preference stability:…”

Section: Over-and Under-representationmentioning

confidence: 99%

“…A simple, yet plausible, description of actual decision-making within the common central bank is a weighted voting approach or a form of Nashbargaining in which voting weights are the fall-back positions. 9 In this case, decisions will be based on a loss function of the form…”

Section: Actual Decision-makingmentioning

confidence: 99%

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How should large and small countries be represented in a currency union?

Berger

Mueller

2007

Public Choice

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The likely extension of the euro area has triggered a debate on the organization of the ECB, in particular on the apparent mismatch between relative economic size and voting rights in the Council. We present a simple model of optimal representation in a federal central bank addressing this question. Optimal voting weights reflect 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". Empirically, there are indications that the pattern of over-and under-representation of member countries in the ECB Council might be extreme by the standards of the US Fed and German Bundesbank and not always optimal. Terms of use: Documents inJEL Code: D72, E52, E58, F33.

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Section: Correlated Economic Shocksmentioning

confidence: 90%

Section: Over-and Under-representationmentioning

confidence: 99%

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How should large and small countries be represented in a currency union?

Berger

Mueller

2007

Public Choice

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“…Because they are investigated in length e.g. in Berger (2002) or Baldwin et al (2001), we restrict ourselves to a short overview.…”

Section: The Necessity Of the Reform And Reform Optionsmentioning

confidence: 99%

Decision-Making of the ECB: Reform and Voting Power

Ullrich

2004

SSRN Journal

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Die Discussion Papers dienen einer möglichst schnellen Verbreitung von neueren Forschungsarbeiten des ZEW. Die Beiträge liegen in alleiniger Verantwortung der Autoren und stellen nicht notwendigerweise die Meinung des ZEW dar.Discussion Papers are intended to make results of ZEW research promptly available to other economists in order to encourage discussion and suggestions for revisions. The authors are solely responsible for the contents which do not necessarily represent the opinion of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp0470.pdf Non-technical SummaryThe number of decision makers in the Governing Council of the ECB increases significantly when new EU members join the European Monetary Union. Therefore, a reform is necessary to ensure the efficiency of the decision-making processes. The agreed reform proposal of the ECB is evaluated using different classification criteria to group the governors for asymmetric rotation and the assignment of voting power instead of voting weights to determine the influence the governors of different rotation groups would have on interest rate decisions.With a growing number of members in the ECB Council, the processes to decide about the interest will be more complex and take considerably more time if the decision-making process is the same as in the status quo. Furthermore, the difference between the economic and political weight will increase. Therefore, the ECB will switch to a rotation scheme if the number of members grows. E.g., if the number of central bank governors would be 25, three groups of governors are formed, where the first group of five members gets four votes, the second 13 members have eight votes and three votes are assigned to the third group of seven governors. Independently of the number of central bank governors in the Council, only 15 governors have voting rights. The members of the board have one vote as hitherto and the president decides in case of a tie.The rotation scheme is assessed, first, using different economic criteria for the classification of the governors into the different groups and, second, determining the voting power of the Council members using voting power indices, especially the Banzhaf measure and the Banzhaf index.We analyse how the composition of the three groups changes if not the index of the reform proposal is used but different economic criteria are applied. One possibility would be the synchronisation of the economic development of the countries. The more similar the economic development the more equal are the needs of the countries with regard to monetary policy. The economic development is described by an index calculated as the unweighed average of the inflation rate and the deviation of industrial production from its trend. It is shown that the grouping in terms of the correlation of the country-specific index with the average of the respective monetary union does not lead to a much different situation regarding the allocation of voting rights. Countries with lo...

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“…1 Prior to this agreement, there was a growing literature on the manner in which enlargement should / might affect ECB decision making institutionally including Berger (2002), Buiter (1999), Baldwin et al (2001a, b), Bjorksten (2000), Eichengreen and Ghironi (2001), Fatum (2000) and de Grauwe (2000). This work contributes to the literature focusing on the efficiency of monetary policy making and the coherence of monetary policy making for economically diverse states -including Deutsche Bundesbank (2001), de Grauwe (2000, EP (2001) and Gros and Hefeker (2000).…”

Section: Introductionmentioning

confidence: 99%