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A euro area macroeconomic stabilisation function: assessing options in view of their redistribution and stabilisation properties

Gerrit Koester and David Sondermann

No 216, Occasional Paper Series from European Central Bank

Abstract: A macroeconomic stabilisation function for the euro area - as envisaged in the Five Presidents’ Report - plays a central role in the debate on deepening Economic and Monetary Union (EMU). We evaluate a broad range of options, their impact on economic growth, macroeconomic stabilisation and synchronisation of the euro area business cycle, and review how they could be designed so they do not undermine incentives for welfare-enhancing national economic policies. A common macroeconomic stabilisation function, e.g. in the form of a European Unemployment Insurance (EUI), could in theory help stabilise the business cycle in the euro area, especially in some participating Member States. Yet, simulating the effects of such a function for 2002-2014 suggests that its stabilisation properties would have been relatively limited. At the same time, design options with meaningful safeguards and relatively low financing requirements would have been most efficient when comparing the degree of stabilisation with the size of the funds distributed among countries. Finally, we discuss some design elements of a scheme whose aim is to support the transition process towards more resilient economic structures in the euro area as envisaged in the Five Presidents’ Report. JEL Classification: J65, H53, F55

Keywords: economic union; EMU; macroeconomic stabilisation; unemployment insurance (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec
Date: 2018-10
Note: 3015628
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