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

Abstract

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.

National representation in supranational institutions: The case of the European Central Bank

“…32 30 For instance, Berger and Mueller (2007) argue that the pattern of over-and under-representation of member countries in the ECB Council might be extreme. Hayo and Méon (2011) examine empirically the effect of the national composition of the Governing Council on decision-making.…”

The Impact of Country-Specific Economic Developments on Ecb Decisions

“…Even after the agreed reform of the ECB decision-making, it is not theoretically clear how the representation of EMU members should be determined in the ECB Governing Council (Berger and Mueller 2004). This issue assumes that national central bank governors base at least part of their decision on regional economic development.…”

Optimal regional biases in ECB interest rate setting

“…For legal and political reasons discussed in the introduction, the ECB may not want to admit that it pays disproportionate attention to the economic circumstances in the larger eurozone countries. The evidence in Von Hagen and Brückner (2001), Alesina et al (2001) and Kool (2005) suggests that this is exactly what the ECB is doing, although some papers suggest the opposite, see Heinemann and Hüfner (2002) and Berger and Mueller (2004).…”

“…Evidence from the Federal Reserve Bank and the Bundesbank in Meade and Sheets (2002) and Berger and De Haan (2002) respectively indeed shows that regional economic developments may affect the voting behaviour of policymakers. Using a simple model of optimal representation in a federal central bank, Berger and Mueller (2004) find that the representation of EMU countries in the ECB council may not be optimal. In addition to this, political considerations influence the weights of member states in ECB policy.…”