The Effectiveness of a Fiscal Transfer Mechanism in a Monetary Union: A DSGE Model for the Euro Area

Loes Verstegen and Lex Meijdam

No 9622, EcoMod2016 from EcoMod

Abstract: In this paper, we incorporate a transfer mechanism into a DSGE model with a rich fiscal sector to assess the effectiveness of fiscal transfers for a monetary union, in particular for the Economic and Monetary Union. Using a heterogeneous setup, the model is estimated for the North and the South of Europe using Bayesian methods. The results show that the transfer mechanism is effective in stabilizing the economy of the southern block of countries during the financial crisis, although the total welfare effect for the EMU is negative, though small. Ex ante, a transfer mechanism would be beneficial for both the North and the South in terms of welfare and stabilization purposes.

Keywords: Economic and Monetary Union of Europe; General equilibrium modeling (CGE); Public finance and tax issues (search for similar items in EconPapers)
Date: 2016-07-04
New Economics Papers: this item is included in nep-dge, nep-eec and nep-mac
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ekd:009007:9622

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