A Transfer Mechanism for a Monetary Union
AbstractWe show in a dynamic stochastic general equilibrium framework that the introduction of a common currency by a group of countries with only partially integrated goods markets, incomplete nancial markets and no labor migration across member states, signi cantly increases volatility of consumption and employment in the face of asymmetric shocks. We propose a simple transfer mechanism between member countries of the union that reduces this volatility. Further- more, we show that this mechanism is more e¢ cient than anticyclical policies at the national level in terms of a better stabilization for the same budgetary e¤ects for households while in the long run deeper integration of goods markets could reduce volatility signi cantly. Re- garding its implementation, we show that the centralized provision of public goods and services at the level of the monetary union implies cross-country transfers comparable to the scheme under study.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2013-013.
Length: 41 pages
Date of creation: Mar 2013
Date of revision:
Monetary Union; Asymmetric Shocks; Fiscal Policy; Fiscal Transfers;
Other versions of this item:
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
- E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-16 (All new papers)
- NEP-CBA-2013-03-16 (Central Banking)
- NEP-OPM-2013-03-16 (Open Economy Macroeconomic)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Andrea Colciago & Tiziano Ropele & V. Anton Muscatelli & Patrizio Tirelli, 2008.
"The Role of Fiscal Policy in a Monetary Union: are National Automatic Stabilizers Effective?,"
Review of International Economics,
Wiley Blackwell, vol. 16(3), pages 591-610, 08.
- Andrea Colciago & Anton Muscatelli & Tiziano Ropele & Patrizio Tirelli, 2006. "The Role of Fiscal Policy in a Monetary Union: Are National Automatic Stabilizers Effective?," CESifo Working Paper Series 1682, CESifo Group Munich.
- Frank Smets & Raf Wouters, 2003.
"An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area,"
Journal of the European Economic Association,
MIT Press, vol. 1(5), pages 1123-1175, 09.
- Frank Smets & Raf Wouters, 2002. "An estimated dynamic stochastic general equilibrium model of the euro area," Working Paper Research 35, National Bank of Belgium.
- Bergin, Paul R., 2006.
"How well can the New Open Economy Macroeconomics explain the exchange rate and current account?,"
Journal of International Money and Finance,
Elsevier, vol. 25(5), pages 675-701, August.
- Paul R. Bergin, 2004. "How Well Can the New Open Economy Macroeconomics Explain the Exchange Rate and Current Account?," NBER Working Papers 10356, National Bureau of Economic Research, Inc.
- Andrea Ferrero, 2005.
"Fiscal and Monetary Rules for a Currency Union,"
- Stephanie Schmitt-Grohe & Martin Uribe, 2002.
"Closing Small Open Economy Models,"
NBER Working Papers
9270, National Bureau of Economic Research, Inc.
- Stephanie Schmitt-Grohe & Martin Uribe, 2001. "Closing Small Open Economy Models," Departmental Working Papers 200115, Rutgers University, Department of Economics.
- Schmitt-Grohé, Stephanie & Uribe, Martín, 2002. "Closing Small Open Economy Models," CEPR Discussion Papers 3096, C.E.P.R. Discussion Papers.
- Kerstin Bernoth & Philipp Engler, 2013. "A Transfer Mechanism as a Stabilization Tool in the EMU," DIW Economic Bulletin, DIW Berlin, German Institute for Economic Research, vol. 3(1), pages 3-8.
- Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
- Charles R. Bean, 1992.
"Economic and Monetary Union in Europe,"
Journal of Economic Perspectives,
American Economic Association, vol. 6(4), pages 31-52, Fall.
- Michael D. Bordo & Agnieszka Markiewicz & Lars Jonung, 2011. "A Fiscal Union for the Euro: Some Lessons from History," NBER Working Papers 17380, National Bureau of Economic Research, Inc.
- Evers, Michael P., 2012. "Federal fiscal transfer rules in monetary unions," European Economic Review, Elsevier, vol. 56(3), pages 507-525.
- Emi Nakamura & Jón Steinsson, 2011. "Fiscal Stimulus in a Monetary Union: Evidence from U.S. Regions," NBER Working Papers 17391, National Bureau of Economic Research, Inc.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Is an imperfect monetary union leading to more volatility?
by Economic Logician in Economic Logic on 2013-05-01 14:07:00
- Poeschel, Friedrich, 2012.
"Assortative matching through signals,"
Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century
62061, Verein für Socialpolitik / German Economic Association.
- Friedrich Poeschel, 2013. "Assortative matching through signals," 2013 Papers ppo178, Job Market Papers.
- Poeschel, Friedrich, 2012. "Assortative matching through signals," IAB Discussion Paper 201215, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
- Dolls, Mathias & Fuest, Clemens & Neumann, Dirk & Peichl, Andreas, 2013.
"Fiscal integration in the eurozone: Economic effects of two key scenarios,"
ZEW Discussion Papers
13-106, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Dolls, Mathias & Fuest, Clemens & Neumann, Dirk & Peichl, Andreas, 2014. "Fiscal Integration in the Eurozone: Economic Effects of Two Key Scenarios," EUROMOD Working Papers em1-14, EUROMOD at the Institute for Social and Economic Research.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (RDC-Team).
If references are entirely missing, you can add them using this form.