CROSS-COUNTRYINSURANCEMECHANISMS INCURRENCY UNIONS:AN EMPIRICALASSESSMENT
NANCY VAN BEERS*, MICHIEL BIJLSMA** AND GIJSBERT ZWART
•Countries in a monetary union can adjust to shocks either through in-ternal or external mechanisms. We quantitatively assess for the Euro-pean Union a number of relevant mechanisms suggested by Mundell’soptimal currency area theory, and compare them to the United States.•For this purpose, we update a number of empirical analyses in theeconomic literature that identify (1) the size of asymmetries acrosscountries and (2) the magnitude of insurance mechanisms rela-tive to similar mechanisms and compare results for the EuropeanMonetary Union (EMU) with those obtained for the US.•To study the level of synchronisation between EMU countries wefollow Alesina
(2002) and Barro and Tenreyro (2007). To mea-sure the effect of an employment shock on employment levels,unemployment rates and participation rates we perform an analy-sis based on Blanchard and Katz (1992) and Decressin and Fatas(1995). We measure consumption smoothing through capital mar-kets, fiscal transfers and savings, using the approach of Asdrubali
(1996) and Afonso and Furceri (2007). To analyse risk sha-ring through a common safety net for banks we perform a rudi-mentary simulation analysis. * Researcher at Netherlands Bureau for Economic Policy Analysis,email@example.com ** Bruegel Visiting Fellow, Head of Competitionand Regulation at Netherlands Bureau for Economic Policy Analysis,Extramural Fellow Tilburg University, firstname.lastname@example.org
Researcherat Netherlands Bureau for Economic Policy Analysis,email@example.com. The authors thank Felipe Brugués and NickyHoogveld for valuable research assistance, and are grateful fordiscussions to Guntram Wolff, Gregory Claeys, Bas ter Weel, ArjanLejour and participants in discussions at the Dutch Ministries of Finance, Economic Affairs and Foreign Affairs.
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