Implementing a Fiscal Transfer Mechanism in a Heterogeneous Monetary Union: A DSGE approach

Thierry Betti

Working Papers of BETA from Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg

Abstract: This paper deals with the implementation of a fiscal transfer mechanism among countries of a monetary union. I use a DSGE model of a monetary union close to Beetsma and Jensen (2005) and introduce both national fiscal policies and a transfer mechanism. I show the transfer has two effects: an obvious shift in demand but also a destabilizing effect due to a higher degradation of the term of trade for the recipient member. Then, I focus on two structural heterogeneities: the sensitivity to the transfer and the relative size of the two countries. I discuss in what extent these heterogeneities affect the effectiveness of the transfer.

Keywords: fiscal federalism; transfer mechanism; new-Keynesian models; monetary union. (search for similar items in EconPapers)
JEL-codes: E32 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:ulp:sbbeta:2013-19

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