Fiscal Transfers in a Monetary Union with Exit Option

Carsten Hefeker and Michael Neugart

No 5244, CESifo Working Paper Series from CESifo

Abstract: It is widely debated whether a monetary union has to be accompanied by a fiscal transfer scheme to accommodate asymmetric shocks. We build a model of a monetary union with a central bank and two heterogeneous countries that are linked by a fiscal transfer scheme with repercussions on monetary policy. A central bank aiming at securing the existence of a monetary union in the presence of asymmetric shocks has to compensate single countries for the tax distortions arising from fiscal transfers. Monetary policy may become more expansionary or restrictive depending on asymmetries between member countries’ inflation aversion and exit costs.

Keywords: monetary union; fiscal transfer scheme; monetary policy; asymmetric shocks; exit (search for similar items in EconPapers)
JEL-codes: E52 E63 F33 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Fiscal Transfers in a Monetary Union with Exit Option (2015)
Working Paper: Fiscal transfers in a monetary union with exit option (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_5244

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