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The Eastern Caribbean Currency Union; Would a Fiscal Insurance Mechanism Mitigate National Income Shocks?

  • Paul Cashin
  • Antonio Lemus

This paper studies the nature of the shocks affecting the Eastern Caribbean Currency Union (ECCU), and examines whether a hypothetical Eastern Caribbean fiscal insurance mechanism could insure member countries of the union against asymmetric national income shocks. The empirical results suggest that a one dollar reduction in an ECCU member country's per capita personal income could trigger, through reduced income taxes and increased transfers, flows equivalent to about 7 percent of the initial income shock. Each member of the currency union could benefit as well, although the extent of shock mitigation differs across individual countries.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/17.

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Length: 23
Date of creation: 01 Jan 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/17
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  1. Oscar Bajo-Rubio & Carmen Díaz-Roldán, 2005. "Vulnerability To Shocks In Emu: 1991-2004," Working Papers 05-08, Asociación Española de Economía y Finanzas Internacionales.
  2. repec:imf:imfpdp:9607 is not listed on IDEAS
  3. Oscar Bajo-Rubio & Carmen Díaz-Roldán, 2005. "Characterizing macroeconomic shocks in the CEECs," Economic Change and Restructuring, Springer, vol. 38(3), pages 227-234, December.
  4. Alesina, Alberto & Perotti, Roberto & Spolaore, Enrico, 1995. "Togetheror separately? Issues on the costs and benefits of political and fiscal unions," European Economic Review, Elsevier, vol. 39(3-4), pages 751-758, April.
  5. Emilio Pineda & Paul Cashin & Yan Sun, 2009. "Assessing Exchange Rate Competitiveness in the Eastern Caribbean Currency Union," IMF Working Papers 09/78, International Monetary Fund.
  6. Asdrubali, Pierfederico & Sorensen, Bent E & Yosha, Oved, 1996. "Channels of Interstate Risk Sharing: United States 1963-1990," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 1081-1110, November.
  7. Sampawende Jules Tapsoba, 2011. "West African Monetary Integration and Interstates Risk-Sharing," Working Papers halshs-00553244, HAL.
  8. Davide Furceri, 2004. "Does the EMU Need a Fiscal Transfer Mechanism?," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 73(3), pages 418-428.
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