Reimagining monetary policy as a federal project

FEDMONEY is hiring a PhD candidate!

FEDMONEY is an ERC Starting Grant exploring the institutional implications of the federal organization of central banks to modulate monetary policy differently across economically heterogeneous areas.

Monetary policy suffers from a “one size fits all” problem. Central banks typically determine monetary policy by setting a headline interest rate uniformly across their jurisdiction. Yet, in large jurisdictions, the optimal monetary policy on average tends to be suboptimal for economically heterogeneous regions. Outside the realm of monetary policy, a solution to this type of governance problem is widely accepted: federalism. Nevertheless, the literature tends to reject federalism as a paradigm of monetary governance. This is curious especially because it is not uncommon for central banks to be structured institutionally according to federalist principles: split into a central headquarters and decentralized branches. Yet even then monetary policy is determined centrally and uniformly across central bank jurisdictions. FEDMONEY’s research hypothesis is that it is desirable to federalize monetary policy by taking advantage of federal central banking structures to modulate monetary policy differently across economically heterogeneous regions. Its central aim is to develop a systematic legal and economic analysis of monetary federalism, which we currently lack. FEDMONEY seeks to verify its research hypothesis by writing the untold legal history of monetary federalism in the United States and Europe. It will contextualize that history in light of constitutional theories of federalism in both jurisdictions, as well as the intellectual history of economic thought. The project seeks to open up new horizons for research in law, economics, and beyond and creates a powerful new tool for central banks to shape economic growth and development.

FEDMONEY is hosted by the Centre Charles de Visscher pour le droit international et européen (CeDIE) at the Law Faculty of UCLouvain in Louvain-la-Neuve (Belgium). The project runs from September 1st, 2023 until August 31st, 2028.