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Fiscal stabilisation in the Euro-Area: A simulation exercise

Nicolas Carnot, Magdalena Kizior and Gilles Mourre ()

No 17-025, Working Papers CEB from ULB -- Universite Libre de Bruxelles

Abstract: This paper simulates a euro area stabilisation instrument that addresses some concerns often levied against such ideas. The simulation uses a 'double condition' over observed unemployment rates for triggering the payments to, as well as the contributions from, participating Member States. The functioning is symmetric between good and bad times and includes a form of experience rating as a further safeguard. The behaviour of the fund is assessed with simulations over the past three decades and with 'real time' simulations dating from the euro’s inception as a crucial robustness check. The simulations show that a significant and timely degree of stabilisation can be achieved, complementing national stabilisers without introducing permanent transfers or increasing overall debt. The paper also explores variants of the basic scheme including the introduction of a threshold for restricting the activity of the fund to large shocks.

Keywords: Macroeconomic stabilisation; risk-sharing; income smoothing; fiscal stabilisers; transfer scheme (search for similar items in EconPapers)
JEL-codes: E61 E62 F36 F42 H77 (search for similar items in EconPapers)
Pages: 51 p.
Date: 2017-10-16
New Economics Papers: this item is included in nep-cmp, nep-cta, nep-eec and nep-mac
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