Macroeconomic Stabilization with a Common Currency:
The implications of monetary unification for fiscal policies are discussed. The roles of nominal exchange rate flexibility in the presence of asymmetric national shocks and nominal price rigidities as an automatic stabilizer and source of disturbances to real economic performance are reviewed. Two main themes are considered. The first is whether a system of fiscal insurance across member states qualitatively replicates the effects of autonomous monetary policy instruments when exchange rates are permanently fixed. It is argued that while fiscal insurance schemes increase the instruments available to fiscal authorities to influence resource allocation, they do not augment existing fiscal instruments in a manner that replicates monetary policy under long run monetary neutrality in an overlapping generations economy. Restrictions imposed on national fiscal instruments as a condition of monetary unification may give rise to a need for fiscal insurance to replace their role as stabilizers. The second theme adresses whether political unification is a necessary logical conclusion of the usefulness of fiscal insurance scheme. The argument that sustainable insurance arrangements can be devised without foregoing national sovereignty over fiscal policymaking is discussed.
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- Blanchard, Olivier Jean & Quah, Danny, 1989.
"The Dynamic Effects of Aggregate Demand and Supply Disturbances,"
American Economic Review,
American Economic Association, vol. 79(4), pages 655-673, September.
- Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbance," Working papers 497, Massachusetts Institute of Technology (MIT), Department of Economics.
- Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
- von Hagen, Jurgen & Hammond, George W, 1998. "Regional Insurance against Asymmetric Shocks: An Empirical Study for the European Community," The Manchester School of Economic & Social Studies, University of Manchester, vol. 66(3), pages 331-353, June.
- Hammond, George & von Hagen, Jürgen, 1995. "Regional Insurance Against Asymmetric Shocks. An Empirical Study for the European Community," CEPR Discussion Papers 1170, C.E.P.R. Discussion Papers.
- Jacques Mélitz, 1995. "A suggested reformulation of the theory of optimal currency areas," Open Economies Review, Springer, vol. 6(3), pages 281-298, July.
- Melitz, Jacques, 1991. "A Suggested Reformulation of the Theory of Optimal Currency Areas," CEPR Discussion Papers 590, C.E.P.R. Discussion Papers.
- Canzoneri, Matthew B. & Diba, Behzad T., 1991. "Fiscal deficits, financial integration, and a central bank for Europe," Journal of the Japanese and International Economies, Elsevier, vol. 5(4), pages 381-403, December.
- Randall W. Eberts & Joe A. Stone, 1992. "Wage and Employment Adjustment in Local Labor Markets," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wea, June. Full references (including those not matched with items on IDEAS)
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