Fiscal Unions
We study cross-country insurance in a currency union with nominal price and wage rigidities. We provide two results that build the case for the creation of a fiscal union within a currency union. First, we show that, if financial markets are incomplete, the value of gaining access to any given level...
| Main Authors: | , |
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| Format: | Working Paper |
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Cambridge, MA: Department of Economics, Massachusetts Institute of Technology
2012
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| Online Access: | http://hdl.handle.net/1721.1/72556 |
| _version_ | 1811092523450368000 |
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| author | Farhi, Emmanuel Werning, Iván |
| author_facet | Farhi, Emmanuel Werning, Iván |
| author_sort | Farhi, Emmanuel |
| collection | MIT |
| description | We study cross-country insurance in a currency union with nominal price and wage rigidities. We provide two results that build the case for the creation of a fiscal union within a currency union. First, we show that, if financial markets are incomplete, the value of gaining access to any given level of insurance is greater for countries that are members of a currency union. Second, we show that, even if financial markets are complete, private insurance is inefficiently low. A role emerges for government intervention in macro insurance to both guarantee its existence and to influence its operation. The efficient insurance arrangement can be implemented by contingent transfers within a fiscal union. The benefits of such a fiscal union are larger, the bigger the asymmetric shocks affecting the members of the currency union, the more persistent these shocks, and the less open the member economies. |
| first_indexed | 2024-09-23T15:19:34Z |
| format | Working Paper |
| id | mit-1721.1/72556 |
| institution | Massachusetts Institute of Technology |
| last_indexed | 2024-09-23T15:19:34Z |
| publishDate | 2012 |
| publisher | Cambridge, MA: Department of Economics, Massachusetts Institute of Technology |
| record_format | dspace |
| spelling | mit-1721.1/725562019-04-12T11:13:38Z Fiscal Unions Farhi, Emmanuel Werning, Iván Fiscal union optimal currency area international insurance fiscal and monetary policy monetary union currency union We study cross-country insurance in a currency union with nominal price and wage rigidities. We provide two results that build the case for the creation of a fiscal union within a currency union. First, we show that, if financial markets are incomplete, the value of gaining access to any given level of insurance is greater for countries that are members of a currency union. Second, we show that, even if financial markets are complete, private insurance is inefficiently low. A role emerges for government intervention in macro insurance to both guarantee its existence and to influence its operation. The efficient insurance arrangement can be implemented by contingent transfers within a fiscal union. The benefits of such a fiscal union are larger, the bigger the asymmetric shocks affecting the members of the currency union, the more persistent these shocks, and the less open the member economies. 2012-09-06T21:26:03Z 2012-09-06T21:26:03Z 2012-07-31 Working Paper http://hdl.handle.net/1721.1/72556 Working Paper, Massachusetts Institute of Technology, Dept. of Economics;12-20 An error occurred on the license name. An error occurred getting the license - uri. application/pdf Cambridge, MA: Department of Economics, Massachusetts Institute of Technology |
| spellingShingle | Fiscal union optimal currency area international insurance fiscal and monetary policy monetary union currency union Farhi, Emmanuel Werning, Iván Fiscal Unions |
| title | Fiscal Unions |
| title_full | Fiscal Unions |
| title_fullStr | Fiscal Unions |
| title_full_unstemmed | Fiscal Unions |
| title_short | Fiscal Unions |
| title_sort | fiscal unions |
| topic | Fiscal union optimal currency area international insurance fiscal and monetary policy monetary union currency union |
| url | http://hdl.handle.net/1721.1/72556 |
| work_keys_str_mv | AT farhiemmanuel fiscalunions AT werningivan fiscalunions |