Cross-country insurance mechanisms in currency unions

Countries in a monetary union can adjust to shocks either through internal or external mechanisms. We quantitatively assess for the European Union a number of relevant mechanisms suggested by Mundell's optimal currency area theory, and compare them to the United States. For this purpose, we upd...

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Bibliographic Details
Published in:Policy File 2014
Main Authors: Beers, Nancy van, Bijlsma, Michiel, Zwart, Gijsbert T J
Format: Report
Language:English
Subjects:
Banking/Finance
Bruegel
Online Access:Request full text
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Summary:Countries in a monetary union can adjust to shocks either through internal or external mechanisms. We quantitatively assess for the European Union a number of relevant mechanisms suggested by Mundell's optimal currency area theory, and compare them to the United States. For this purpose, we update a number of empirical analyses in the economic literature that identify (1) the size of asymmetries across countries and (2) the magnitude of insurance mechanisms relative to similar mechanisms and compare results for the European Monetary Union (EMU) with those obtained for the US.