Regional Insurance Against Asymmetric Shocks. An Empirical Study for the European Community
George Hammond () and
Juergen von Hagen ()
No 1170, CEPR Discussion Papers from C.E.P.R. Discussion Papers
The loss of the exchange rate as an independent policy instrument implied by EMU has spurred calls for an insurance scheme as a buffer against temporary, asymmetric shocks to national income. We study the potential properties of such a system using historical data from the 12 EC economies. An insurance scheme with reasonable properties can be implemented on the basis of a fairly complex econometric formula. Simplifying the computation of the transfers severely worsens the performance of the system, however. Forcing the system to balance financially is not a critical constraint. The simulations show that stabilizing asymmetric shocks around a common trend may amplify the univariate variance of GDP for some member countries.
Keywords: Business Cycles; Fiscal Federalism; Monetary Union; Stabilization Policy (search for similar items in EconPapers)
JEL-codes: E32 E52 E63 F42 (search for similar items in EconPapers)
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Journal Article: Regional Insurance against Asymmetric Shocks: An Empirical Study for the European Community (1998)
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