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Journal of Economic Integration 2012 December;27(4) :633-653.
What could happen in a Monetary Union? The Perspective of Informational Asymmetry
Cornel Oros 
CRIEF, Université de Poitiers and LEO, Université d'Orléans
Corresponding Author: Cornel Oros ,Tel: (33) 05 49 28 75 51, Fax: (33) 05 49 45 41 58, Email:
Copyright ©2012 Journal of Economic Integration
The subsidiarity principle governing the collection of statistical data in a monetary union may result in asymmetrical information. The national governments may be tempted to distort their economic and financial data communicated to the union’s central bank in order to influence its monetary policy decisions. We base our analysis on a static Keynesian model in a closed monetary union and we prove that the governments’ incentives to modify their private information depend mainly on the nature of the economic shocks affecting the union members, on the degree of monetary activism, and on the extent of the union’s structural heterogeneity. We analyse the institutional mechanisms that could be used to discipline the governments and encourage them to communicate real information. An incentive contract of the “principal-agent” type or a variable geometry fiscal coordination represent two institutional solutions that could help to create a revealing equilibrium within a monetary union.

JEL Classification
E52: Monetary Policy
E58: Central Banks and Their Policies
E61: Policy Objectives; Policy Designs and Consistency; Policy Coordination
E62: Fiscal Policy
E63: Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
Keywords: Economic Policy | Asymmetrical Information | Economic Shocks | Structural Heterogeneity
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