Central Bank Independence and Budget Constraints for a Stable Euro

  title={Central Bank Independence and Budget Constraints for a Stable Euro},
  author={Francesco Papadia and Gianmarco Ruggiero},
  journal={Open Economies Review},
This paper looks at what economic theory and empirical evidence have to offer about the institutional conditions that are most likely to lead to a stable currency. Both theory and evidence suggest that an independent central bank with the explicit mandate to pursue price stability provides an effective solution to the time-inconsistency problem. The EMU institutional set-up is well-equipped to support a stability-oriented monetary policy. The ECB appears to be the most independent central bank… 

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