A Euro Area Macroeconomic Stabilisation Function: Assessing Options in View of Their Redistribution and Stabilisation Properties

58 Pages Posted: 2 Nov 2018

See all articles by Gerrit Koester

Gerrit Koester

European Central Bank (ECB)

David Sondermann

European Central Bank (ECB)

Date Written: October 31, 2018

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.

Keywords: EMU, economic union, macroeconomic stabilisation, unemployment insurance

JEL Classification: J65, H53, F55

Suggested Citation

Koester, Gerrit B. and Sondermann, David, A Euro Area Macroeconomic Stabilisation Function: Assessing Options in View of Their Redistribution and Stabilisation Properties (October 31, 2018). ECB Occasional Paper No. 216. Available at SSRN: https://ssrn.com/abstract=3277423

Gerrit B. Koester (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

David Sondermann

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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