EMU Enlargement, Stabilisation Costs and Insurance Mechanisms

Posted: 11 Mar 2008  

Antonio Afonso

University of Lisbon - School of Economics and Management; UECE (Research Unit on Complexity and Economics)

Davide Furceri

University of Palermo; Organization for Economic Co-Operation and Development (OECD)

Abstract

This paper considers the determinants of the macroeconomic costs of joining EMU for the new EU Member Sates, and compares them with those of the EMU members. Specifically, we investigate the business-cycle correlation between the candidate's economy and that of the euro area as a whole, and the ability of insurance mechanisms and fiscal policies to smooth income fluctuations. The results suggest that EMU membership would not be costly for some countries (Cyprus, Hungary and Malta) but for other countries it could have relevant costs, at least in the short-run. For some of these countries, business cycles are not yet well synchronized with the euro area's business cycle, and risk-sharing mechanisms do not provide enough insurance against shocks.

Keywords: EMU, Optimum Currency Areas, Stabilisation Costs, Insurance Mechanisms

JEL Classification: E32, E42, F41, F42

Suggested Citation

Afonso, Antonio and Furceri, Davide, EMU Enlargement, Stabilisation Costs and Insurance Mechanisms. Journal of International Money and Finance, Vol. 27, No. 2, pp. 169-187, 2008. Available at SSRN: https://ssrn.com/abstract=999314

Antonio Afonso (Contact Author)

University of Lisbon - School of Economics and Management ( email )

Rua do Quelhas, n.ยบ 6
Lisbon, 1200-781
Portugal

UECE (Research Unit on Complexity and Economics)

Rua Miguel Lupi 20
Lisbon, 1249-078
Portugal
+351-213 925 912 (Phone)
+351-213 971 196 (Fax)

HOME PAGE: http://www.iseg.utl.pt/~uece/

Davide Furceri

University of Palermo ( email )

Viale delle Scienza
Palermo, Buenos Aires 90128
Italy

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

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