Published in:CESifo Working Paper Series ; No. 5762
Extent:
1 Online-Ressource (33 p)
Language:
English
DOI:
10.2139/ssrn.2749072
Identifier:
Origination:
Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments February 18, 2016 erstellt
Description:
This paper quantifies the welfare differences among a monetary union, flexible exchange rates (economic disintegration) and a monetary plus fiscal transfer union (higher economic integration). The vehicle of analysis is a medium-scale New Keynesian DSGE model consisting of two heterogeneous countries. The model is solved using data from Germany and Italy. Our solutions imply that a switch to flexible exchange rates and independent monetary policies would have negligible welfare implications. A similar result applies when we add interregional fiscal transfers as insurance. By contrast, the addition of fiscal transfers as redistribution has non-trivial implications and these depend crucially on whether such one-sided transfers trigger moral hazard behavior or not