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Insurance Mechanisms against Asymmetric Shocks in a Monetary Union : a Proposal with an Application to EMU

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  • Oscar BAJO-RUBIO

    (Universidad Publica de Navarra)

  • Carmen DIAZ-ROLDAN

    (Universidad Publica de Navarra)

Abstract

In this paper we propose a simple, automatic insurance mechanism designed to cope with asymmetric shocks in a monetary union, which could be used as starting point of a more elaborated policy instrument. The mechanism would use as indicator of the occurrence of a shock the changes in the unemployment rate of the countries belonging to the union, and would be financed through a fund built from contributions of these countries as a percentage of their tax receipts. The fund would be distributed among the countries affected by a négative asymmetric shock according to the proportion in which every one of them would hâve been affected by the shock. Our proposai is illustrated by means of an empirical application to the case of EMU.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (REL - Recherches Economiques de Louvain) with number 2003013.

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Length: 23
Date of creation: 01 Mar 2003
Date of revision:
Handle: RePEc:ctl:louvre:2003013

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Keywords: Monetary union; asymmetric shocks; insurance function;

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References

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  1. Eichengreen, Barry, 1993. "European Monetary Unification," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 31(3), pages 1321-57, September.
  2. Barry Eichengreen & Charles Wyplosz, 1998. "The Stability Pact: more than a minor nuisance?," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 13(26), pages 65-113, 04.
  3. Forni, Mario & Reichlin, Lucrezia, 2001. "Federal policies and local economies: Europe and the US," European Economic Review, Elsevier, Elsevier, vol. 45(1), pages 109-134, January.
  4. Óscar Bajo Rubio & Carmen Díaz Roldán, 2000. "On The Insurance Function Of Fiscal Policy In A Monetary Union," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra, Departamento de Economía - Universidad Pública de Navarra 0012, Departamento de Economía - Universidad Pública de Navarra.
  5. Persson, Torsten & Tabellini, Guido, 1996. "Federal Fiscal Constitutions: Risk Sharing and Moral Hazard," Econometrica, Econometric Society, Econometric Society, vol. 64(3), pages 623-46, May.
  6. Frankel, Jeffrey A. & Rose, Andrew K., 1997. "Is EMU more justifiable ex post than ex ante?," European Economic Review, Elsevier, Elsevier, vol. 41(3-5), pages 753-760, April.
  7. Xavier Sala-i-Martin & Jeffrey Sachs, 1991. "Fiscal Federalism and Optimum Currency Areas: Evidence for Europe From the United States," NBER Working Papers 3855, National Bureau of Economic Research, Inc.
  8. Bayoumi, Tamim & Masson, Paul R., 1995. "Fiscal flows in the United States and Canada: Lessons for monetary union in Europe," European Economic Review, Elsevier, Elsevier, vol. 39(2), pages 253-274, February.
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Cited by:
  1. Carmen Díaz-Roldán & Oscar Bajo-Rubio, . "Vulnerability to Shocks in EMU: 1991-2004," Working Papers on International Economics and Finance 05-08, FEDEA.
  2. Simón Sosvilla Rivero & Oscar Bajo Rubio & Carmen Díaz Roldán, . "Sobre la efectividad de la política regional comunitaria: El caso de Castilla-la Mancha," Working Papers 2003-25, FEDEA.
  3. Óscar Bajo Rubio & Carmen Díaz Roldán, 2000. "On The Insurance Function Of Fiscal Policy In A Monetary Union," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra, Departamento de Economía - Universidad Pública de Navarra 0012, Departamento de Economía - Universidad Pública de Navarra.

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