Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Euro Area Crisis

Contents:

Author Info

  • Davide Furceri
  • Aleksandra Zdzienicka

Abstract

The aim of this paper is to assess the effectiveness of risk sharing mechanisms in the euro area and whether a supranational fiscal risk sharing mechanism could insure countries against very severe downturns. Using an unbalanced panel of 15 euro area countries over the period 1979-2010, the results of the paper show that: (i) the effectiveness of risk sharing mechanisms in the euro area is significantly lower than in existing federations (such as the U.S. and Germany) and (ii) it falls sharply in severe downturns just when it is needed most; (iii) a supranational fiscal stabilization mechanism, financed by a relatively small contribution, would be able to fully insure euro area countries against very severe, persistent and unanticipated downturns.

Download Info

If 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.
File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=40964
Download Restriction: no

Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/198.

as in new window
Length: 34
Date of creation: 25 Sep 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/198

Contact details of provider:
Postal: International Monetary Fund, Washington, DC USA
Phone: (202) 623-7000
Fax: (202) 623-4661
Email:
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC

Order Information:
Web: http://www.imf.org/external/pubs/pubs/ord_info.htm

Related research

Keywords: Financial crisis; Euro Area; Fiscal risk; Fiscal policy; Fiscal stability; risk sharing; consumption smoothing; fiscal union; moral hazard; banking crises; moral hazard problems; private consumption; risk aversion; income variable; partial insurance; applications; negative spillovers; central budget;

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Jordi GalÌ & Roberto Perotti, 2003. "Fiscal policy and monetary integration in Europe," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 18(37), pages 533-572, October.
  2. Hammond, George & von Hagen, Jürgen, 1995. "Regional Insurance Against Asymmetric Shocks. An Empirical Study for the European Community," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1170, C.E.P.R. Discussion Papers.
  3. Bent E. Sørensen & Oved Yosha, 1998. "International Risk Sharing and European Monetary Unification," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 327, Bank of Italy, Economic Research and International Relations Area.
  4. David Wildasin, 1996. "Introduction: Fiscal Aspects of Evolving Federations," International Tax and Public Finance, Springer, Springer, vol. 3(2), pages 121-135, May.
  5. 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.
  6. Harding, Don & Pagan, Adrian, 2002. "Dissecting the cycle: a methodological investigation," Journal of Monetary Economics, Elsevier, Elsevier, vol. 49(2), pages 365-381, March.
  7. Sorensen, B-E & Yosha, O, 1996. "International Risk Sharing and European Monetary Unification," Papers, Tel Aviv 40-96, Tel Aviv.
  8. Ralf Hepp & Jürgen von Hagen, 2010. "Interstate Risk Sharing in Germany: 1970-2006," Fordham Economics Discussion Paper Series, Fordham University, Department of Economics dp2010-04, Fordham University, Department of Economics.
  9. Hutchison, Michael M. & Noy, Ilan & Wang, Lidan, 2010. "Fiscal and monetary policies and the cost of sudden stops," Journal of International Money and Finance, Elsevier, Elsevier, vol. 29(6), pages 973-987, October.
  10. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "From Financial Crash to Debt Crisis," NBER Working Papers 15795, National Bureau of Economic Research, Inc.
  11. Sanjeev Gupta & Carlos Mulas-Granados & Emanuele Baldacci, 2009. "How Effective is Fiscal Policy Response in Systemic Banking Crises?," IMF Working Papers 09/160, International Monetary Fund.
  12. Emmanuel Farhi, 2013. "Fiscal Unions," 2013 Meeting Papers, Society for Economic Dynamics 194, Society for Economic Dynamics.
  13. Tesar, Linda L. & Werner, Ingrid M., 1995. "Home bias and high turnover," Journal of International Money and Finance, Elsevier, Elsevier, vol. 14(4), pages 467-492, August.
  14. Marco Del Negro, 2000. "Asymmetric shocks among U.S. states," Working Paper, Federal Reserve Bank of Atlanta 2000-27, Federal Reserve Bank of Atlanta.
  15. Davide Furceri & Aleksandra Zdzienicka, 2012. "The Consequences of Banking Crises for Public Debt," International Finance, Wiley Blackwell, Wiley Blackwell, vol. 15(3), pages 289-307, December.
  16. 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.
  17. Furceri, Davide & Karras, Georgios, 2007. "Country size and business cycle volatility: Scale really matters," Journal of the Japanese and International Economies, Elsevier, vol. 21(4), pages 424-434, December.
  18. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises," IMF Working Papers 08/224, International Monetary Fund.
  19. Davide Furceri & Aleksandra Zdzienicka, 2010. "Banking Crises and Short and Medium Term Output Losses in Developing Countries: The Role of Structural and Policy Variables," Working Papers, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure 1014, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  20. Manmohan S. Kumar & Emanuele Baldacci, 2010. "Fiscal Deficits, Public Debt, and Sovereign Bond Yields," IMF Working Papers 10/184, International Monetary Fund.
  21. Stefano G. Athanasoulis & Eric van Wincoop, 2001. "Risk Sharing Within The United States: What Do Financial Markets And Fiscal Federalism Accomplish?," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 688-698, November.
  22. Bucovetsky, Sam, 1998. "Federalism, equalization and risk aversion," Journal of Public Economics, Elsevier, Elsevier, vol. 67(3), pages 301-328, March.
  23. Michael W. Klein & Tamim Bayoumi, 1997. "A Provincial View of Economic Integration," IMF Working Papers 97/41, International Monetary Fund.
  24. Afonso, António & Furceri, Davide, 2008. "EMU enlargement, stabilization costs and insurance mechanisms," Journal of International Money and Finance, Elsevier, Elsevier, vol. 27(2), pages 169-187, March.
  25. Andrew Atkeson & Tamim Bayoumi, 1993. "Do private capital markets insure regional risk? Evidence from the United States and Europe," Open Economies Review, Springer, Springer, vol. 4(3), pages 303-324, September.
  26. Persson, Torsten & Tabellini, Guido, 1996. "Federal Fiscal Constitutions: Risk Sharing and Redistribution," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 104(5), pages 979-1009, October.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Delbecque, Bernard, 2013. "Proposal for a Stabilisation Fund for the EMU," CEPS Papers, Centre for European Policy Studies 8494, Centre for European Policy Studies.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:13/198. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow) or (Hassan Zaidi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.