Fiscal Transfers in a Monetary Union with Exit Option

25 Pages Posted: 21 Mar 2015

See all articles by Carsten Hefeker

Carsten Hefeker

HWWA Institute of International Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Michael Neugart

Technical University of Darmstadt

Multiple version iconThere are 2 versions of this paper

Date Written: March 19, 2015

Abstract

It is widely debated whether a monetary union has to be accompanied by a fiscal transfer scheme to accommodate asymmetric shocks. We build a model of a monetary union with a central bank and two heterogeneous countries that are linked by a fiscal transfer scheme with repercussions on monetary policy. A central bank aiming at securing the existence of a monetary union in the presence of asymmetric shocks has to compensate single countries for the tax distortions arising from fiscal transfers. Monetary policy may become more expansionary or restrictive depending on asymmetries between member countries’ inflation aversion and exit costs.

Keywords: monetary union, fiscal transfer scheme, monetary policy, asymmetric shocks, exit

JEL Classification: E520, E630, F330

Suggested Citation

Hefeker, Carsten and Neugart, Michael, Fiscal Transfers in a Monetary Union with Exit Option (March 19, 2015). CESifo Working Paper Series No. 5244, Available at SSRN: https://ssrn.com/abstract=2580819

Carsten Hefeker (Contact Author)

HWWA Institute of International Economics ( email )

Heimhuder Strasse 71
20347 Hamburg, DE Hamburg 20148
Germany

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

Michael Neugart

Technical University of Darmstadt ( email )

Hochschulstraße 1
Darmstadt, 64289
Germany

HOME PAGE: http://www.vwl3.wi.tu-darmstadt.de

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
55
Abstract Views
455
rank
445,717
PlumX Metrics