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Cross-country insurance mechanisms in currency unions. Bruegel Working Paper 2014/04, 27 March 2014

van Beers, Nancy and Bijlsma , Michiel and Zwart, Gijsbert T. J. (2014) Cross-country insurance mechanisms in currency unions. Bruegel Working Paper 2014/04, 27 March 2014. [Working Paper]

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    Abstract

    Countries in a monetary union can adjust to shocks either through internal or external mechanisms. We quantitatively assess for the European Union a number of relevant mechanisms suggested by Mundell’s optimal currency area theory, and compare them to the United States. For this purpose, we update a number of empirical analyses in the economic literature that identify (1) the size of asymmetries across countries and (2) the magnitude of insurance mechanisms relative to similar mechanisms and compare results for the European Monetary Union (EMU) with those obtained for the US. To study the level of synchronization between EMU countries we follow Alesina et al. (2002) and Barro and Tenreyro (2007). To measure the effect of an employment shock on employment levels, unemployment rates and participation rates we perform an analysis based on Blanchard and Katz (1992) and Decressin and Fatas (1995). We measure consumption smoothing through capital markets, fiscal transfers and savings, using the approach by Asdrubali et al. (1996) and Afonso and Furceri (2007). To analyze risk sharing through a common safety net for banks we perform a rudimentary simulation analysis. |

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    Item Type: Working Paper
    Subjects for non-EU documents: EU policies and themes > External relations > EU-US
    EU policies and themes > Policies & related activities > economic and financial affairs > EMU/EMS/euro
    EU policies and themes > Policies & related activities > economic and financial affairs > Single Market > capital, goods, services, workers
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Bruegel (Brussels) > Working Papers
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 01 Apr 2014 11:28
    Number of Pages: 54
    Last Modified: 01 Apr 2014 11:28
    URI: http://aei.pitt.edu/id/eprint/50242

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