A Transfer Mechanism for a Monetary Union

Philipp Engler & Simon Voigts
We show in a dynamic stochastic general equilibrium framework that the introduction of a common currency by a group of countries with only partially integrated goods markets, incomplete ?nancial markets and no labor migration across member states, signi?cantly increases volatility of consumption and employment in the face of asymmetric shocks. We propose a simple transfer mechanism between member countries of the union that reduces this volatility. Further- more, we show that this mechanism is more...
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