Monetary union, even higher integration, or back to national currencies?

Economides, G., Philippopoulos, A. and Varthalitis, P. (2016) Monetary union, even higher integration, or back to national currencies? CESIFO Economic Studies, 62(2), pp. 232-255. (doi: 10.1093/cesifo/ifw002)

Abstract

This article 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.

• Item Type: Articles
• Keywords: Fiscal union; monetary union; New Keynesian, DSGE.
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Varthalitis, Dr Petros and Philippopoulos, Prof Apostolis
• Authors: Economides, G., Philippopoulos, A., and Varthalitis, P.
• College/School: College of Social Sciences > Adam Smith Business School > Economics
• Journal Name: CESIFO Economic Studies
• Publisher: Oxford University Press
• ISSN: 1610-241X
• ISSN (Online): 1612-7501
• Published Online: 24 March 2016
• Copyright Holders: Copyright © 2016 The Authors
• First Published: First published in CESIFO Economic Studies 62(2): 232-255
• Publisher Policy: Reproduced in accordance with the copyright policy of the publisher