Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/128465
Authors: 
Economides, George
Philippopoulos, Apostolis
Varthalitis, Petros
Year of Publication: 
2016
Series/Report no.: 
CESifo Working Paper 5762
Abstract: 
This paper quantifies the welfare differences among a monetary union, flexible exchange rates (economic disintegration) and a monetary plus fiscal transfer union (higher economic integration). The vehicle of analysis is a medium-scale New Keynesian DSGE model consisting of two heterogeneous countries. The model is solved using data from Germany and Italy. Our solutions imply that a switch to flexible exchange rates and independent monetary policies would have negligible welfare implications. A similar result applies when we add interregional fiscal tranfers as insurance. By contrast, the addition of fiscal tranfers as redistribution has non-trivial implications and these depend crucially on whether such one-sided transfers trigger moral hazard behavior or not.
Subjects: 
fiscal union
monetary union
New Keynesian
DSGE
JEL: 
E60
F30
H60
Document Type: 
Working Paper

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