Regional non-adjustment and fiscal policy
Maurice Obstfeld and
Giovanni Peri
Economic Policy, 1998, vol. 13, issue 26, 206-259
Abstract:
Summary Asymmetric shocks Regional non-adjustment and fiscal policyHow will countries handle idiosyncratic macroeconomic shocks under the single currency? Since the regional adjustment patterns currently prevailing within European currency unions are likely to prevail at the national level under the single currency, looking at the ways in which European countries react to internally asymmetric shocks today provides a good preview for the answer to that question. In this paper, we compare the USA with Germany, Italy and the UK, and with Canada, which is closer to Europe than the USA in its labour market and fiscal institutions.Europe's (and to some extent Canada's) model of regional response differs from that of the USA. Changes in regional real exchange rates are small in all countries. Outside of the USA, however, there is more reliance on interregional transfer payments, less on labour migration, and the pace of regional adjustment appears to be slower. If EMU aims at the same degree of economic and social cohesion that its constituent nations enjoy today, this suggests that its members may find it hard to resist the eventual extension of existing EU mechanisms of income redistribution - a transfer union. We propose an alternative strategy based on a relaxed Stability Pact, further strictures against central EU borrowing, labour market and fiscal reform, and the issuance by individual member states of debt indexed to nominal GDP.— Maurice Obstfeld and Giovanni Peri
Date: 1998
References: Add references at CitEc
Citations: View citations in EconPapers (182)
Downloads: (external link)
http://hdl.handle.net/10.1111/1468-0327.00032 (application/pdf)
Access to full text is restricted to subscribers.
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:oup:ecpoli:v:13:y:1998:i:26:p:206-259.
Access Statistics for this article
Economic Policy is currently edited by Ghazala Azmat, Roberto Galbiati, Isabelle Mejean and Moritz Schularick
More articles in Economic Policy from CEPR, CESifo, Sciences Po Contact information at EDIRC., CES Contact information at EDIRC., MSH Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().