A Transfer Mechanism for a Monetary Union
We 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 Â…nancial markets and no labor migration across member states, signiÂ…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 eÂ¢ cient than anticyclical policies at the national level in terms of a better stabilization for the same budgetary eÂ¤ects for households while in the long run deeper integration of goods markets could reduce volatility signiÂ…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.
|Date of creation:||Mar 2013|
|Date of revision:|
|Contact details of provider:|| Postal: Spandauer Str. 1,10178 Berlin|
Web page: http://sfb649.wiwi.hu-berlin.de
More information through EDIRC
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.:
- Charles R. Bean, 1992.
"Economic and Monetary Union in Europe,"
Journal of Economic Perspectives,
American Economic Association, vol. 6(4), pages 31-52, Fall.
- Evers, Michael P., 2012. "Federal fiscal transfer rules in monetary unions," European Economic Review, Elsevier, vol. 56(3), pages 507-525.
- 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.
- 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.
- Ferrero, Andrea, 2005.
"Fiscal and monetary rules for a currency union,"
Working Paper Series
0502, European Central Bank.
- Frank Smets & Raf Wouters, 2002.
"An estimated dynamic stochastic general equilibrium model of the euro area,"
Working Paper Research
35, National Bank of Belgium.
- 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.
- Stephanie Schmitt-Grohe & Martin Uribe, 2001.
"Closing Small Open Economy Models,"
Departmental Working Papers
200115, Rutgers University, Department of Economics.
- 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.
- Emi Nakamura & J?n Steinsson, 2014. "Fiscal Stimulus in a Monetary Union: Evidence from US Regions," American Economic Review, American Economic Association, vol. 104(3), pages 753-92, March.
- 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.
- Michael D. Bordo & Lars Jonung & Agnieszka Markiewicz, 2013. "A Fiscal Union for the Euro: Some Lessons from History ," CESifo Economic Studies, CESifo, vol. 59(3), pages 449-488, September.
- Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
- 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.
- 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.
- 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.
When requesting a correction, please mention this item's handle: RePEc:hum:wpaper:sfb649dp2013-013. 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: (RDC-Team)
If references are entirely missing, you can add them using this form.