Insurance Mechanisms against Asymmetric Shocks in a Monetary Union : a Proposal with an Application to EMU
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 nÃ©gative asymmetric shock according to the proportion in which every one of them would hÃ¢ve been affected by the shock. Our proposai is illustrated by means of an empirical application to the case of EMU.
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