Structural heterogeneity and partial budgetary cooperation in a monetary union

Séverine Menguy

No 2012-38, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

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.

Keywords: economic stabilization; monetary union; budgetary cooperation; demand shocks; supply shocks; structural heterogeneity (search for similar items in EconPapers)
JEL-codes: E61 E63 F41 F42 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:201238

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