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Structural heterogeneity and partial budgetary cooperation in a monetary union

Author

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  • Menguy, Séverine

Abstract

The paper analyzes the usefulness of budgetary cooperation in a monetary union, even if it is limited to a subgroup of countries with close structural characteristics. The author finds that its advantages depend on the nature of the shocks and on the width of the heterogeneities within the monetary union. Budgetary cooperation between countries where the sensitivities of economic activity to public expenditures and to foreign economic activity are sufficiently high, is beneficial to stabilize symmetric demand shocks. It is beneficial to stabilize symmetric supply shocks if it concerns a sufficiently large number of countries. On the contrary, budgetary cooperation is generally detrimental to stabilize asymmetric demand or supply shocks.

Suggested Citation

  • Menguy, Séverine, 2012. "Structural heterogeneity and partial budgetary cooperation in a monetary union," Economics Discussion Papers 2012-38, Kiel Institute for the World Economy (IfW).
  • Handle: RePEc:zbw:ifwedp:201238
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    More about this item

    Keywords

    economic stabilization; monetary union; budgetary cooperation; demand shocks; supply shocks; structural heterogeneity;

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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