Is there a tragedy of a common central bank? A dynamic analysis

A great deal of uncertainty exists about the degree to which a European Central Bank (ECB) can be exploited as common property by undisciplined governments. In a dynamic game between symmetric national governments and a single monetary authority, open-loop strategies in the national setting coincide with strategies in the international setting. Compared to the open-loop outcome, feed-back strategies slow down debt stabilization. Moreover, debt adjustment is quicker with a common ECB than with individual central banks, while inflation as well as fiscal deficits are lower. These results conflict sharply with the notion of the ECB as common property.