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EMU enlargement, stabilization costs and insurance mechanisms

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  • Afonso, António
  • Furceri, Davide

Abstract

This paper considers the determinants of the macroeconomic costs of joining EMU for the new EU Member Sates, and compares them with those of the EMU members. Specifically, we investigate the business cycle correlation between the candidate's economy and that of the euro area as a whole, and the ability of insurance mechanisms and fiscal policies to smooth income fluctuations. The results suggest that EMU membership would not be costly for some countries (Cyprus, Hungary and Malta) but for other countries it could have relevant costs, at least in the short-run. For some of these countries, business cycles are not yet well synchronized with the euro area's business cycle, and risk-sharing mechanisms do not provide enough insurance against shocks.

Suggested Citation

  • Afonso, António & Furceri, Davide, 2008. "EMU enlargement, stabilization costs and insurance mechanisms," Journal of International Money and Finance, Elsevier, vol. 27(2), pages 169-187, March.
  • Handle: RePEc:eee:jimfin:v:27:y:2008:i:2:p:169-187
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    Cited by:

    1. António Afonso, & Marcelo Alcântara, 2016. "Euro Area Sovereign Debt Crisis and Debt Mutualisation," Working Papers Department of Economics 2016/07, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    2. Timothy J. Goodspeed, 2016. "Absorbing Shocks: National Rainy-Day Funds and Cross-Country Transfers in a Fiscal Union," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 72(4), pages 407-420, December.
    3. Fabrizio Balassone & Sandro Momigliano & Marzia Romanelli & Pietro Tommasino, 2014. "Just round the corner? Pros, cons, and implementation issues of a fiscal union for the euro area," Questioni di Economia e Finanza (Occasional Papers) 245, Bank of Italy, Economic Research and International Relations Area.
    4. Crespo-Cuaresma, Jesús & Fernández-Amador, Octavio, 2013. "Business cycle convergence in EMU: A second look at the second moment," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 239-259.
    5. Davide Furceri & Aleksandra Zdzienicka, 2015. "The Euro Area Crisis: Need for a Supranational Fiscal Risk Sharing Mechanism?," Open Economies Review, Springer, vol. 26(4), pages 683-710, September.
    6. Sampawende Jules TAPSOBA, 2009. "Union Monétaire en Afrique de l’Ouest: Quelles Réponses à l’Hétérogénéité des Chocs ?," Working Papers 200912, CERDI.
    7. Afonso, António & Jalles, João Tovar, 2013. "Growth and productivity: The role of government debt," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 384-407.
    8. S. Guillaumont Jeanneney & S. J‐A. Tapsoba, 2012. "Aid and Income Stabilization," Review of Development Economics, Wiley Blackwell, vol. 16(2), pages 216-229, May.
    9. Sampawende Jules Tapsoba, 2011. "Union Monétaire en Afrique de l'Ouest: Quelles Réponses à l'Hétérogénéité des Chocs ?," Working Papers halshs-00554309, HAL.
    10. Anderson, Nicola & Brooke, Martin & Hume, Michael & Kürtösiová, Miriam, 2015. "Financial Stability Paper 33: A European Capital Markets Union: implications for growth and stability," Bank of England Financial Stability Papers 33, Bank of England.
    11. Triandafil, Cristina Maria, 2011. "The Analysis Of The Convergence Criteria. Empirical Perspective In The Context Of The Sustainable Character Highlight," Working Papers of National Institute of Economic Research 111205, National Institute of Economic Research.
    12. António Afonso & Davide Furceri, 2009. "Sectoral Business Cycle Synchronization in the European Union," Economics Bulletin, AccessEcon, vol. 29(4), pages 2996-3014.
    13. Davide Furceri & Annabelle Mourougane, 2010. "Une lecture de la crise à la lumière des crises passées," Économie et Statistique, Programme National Persée, vol. 438(1), pages 19-42.
    14. BIKAI, J. Landry & KENKOUO, Guy Albert, 2015. "Analysis and evaluation of the Monetary Policy Transmission Channels in the CEMAC: A SVAR and SPVAR Approaches," MPRA Paper 78227, University Library of Munich, Germany.
    15. Kosei Fukuda, 2010. "Three new empirical perspectives on the Hodrick–Prescott parameter," Empirical Economics, Springer, vol. 39(3), pages 713-731, December.
    16. Masayoshi Hayashi, 2013. "On the Decomposition of Regional Stabilization and Redistribution," CIRJE F-Series CIRJE-F-910, CIRJE, Faculty of Economics, University of Tokyo.
    17. Sybille Lehwald, 2013. "Has the Euro changed business cycle synchronization? Evidence from the core and the periphery," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 40(4), pages 655-684, November.
    18. P. Butzen & S. Cheliout & H. Geeroms, 2014. "Lessons from the US for the institutional design of EMU," Economic Review, National Bank of Belgium, issue ii, pages 82-101, September.
    19. Lukas Vogel & Werner Roeger & Bernhard Herz, 2013. "The Performance of Simple Fiscal Policy Rules in Monetary Union," Open Economies Review, Springer, vol. 24(1), pages 165-196, February.
    20. António Afonso & João Tovar Jalles, 2014. "Fiscal composition and long-term growth," Applied Economics, Taylor & Francis Journals, vol. 46(3), pages 349-358, January.
    21. Alcidi, Cinzia & Thirion, Gilles, 2017. "Fiscal Risk Sharing and Resilience to Shocks: Lessons for the euro area from the US," CEPS Papers 12595, Centre for European Policy Studies.
    22. repec:eee:riibaf:v:42:y:2017:i:c:p:1074-1088 is not listed on IDEAS
    23. Davide Furceri & Annabelle Mourougane, 2009. "Financial Crises: Past Lessons and Policy Implications," OECD Economics Department Working Papers 668, OECD Publishing.
    24. Furceri, Davide, 2010. "Stabilization effects of social spending: Empirical evidence from a panel of OECD countries," The North American Journal of Economics and Finance, Elsevier, vol. 21(1), pages 34-48, March.
    25. TRIANDAFIL, Cristina Maria, 2013. "Sustainability of convergence in the context of macro-prudential policies in the European Union," Working Papers of National Institute of Economic Research 130618, National Institute of Economic Research.

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