The Effectiveness of a Fiscal Transfer Mechanism in a Monetary Union: A DSGE Model for the Euro Area

Loes Verstegen, Lex Meijdam

Research output: Working paperDiscussion paperOther research output

Abstract

In this paper, we incorporate a transfer mechanism into a DSGE model with a rich fiscal sector to assess the effectiveness of fiscal transfers for a monetary union, in particular for the Economic and Monetary Union. Using a heterogeneous setup, the model is estimated for the North and the South of Europe using Bayesian methods. The results show that the transfer mechanism is effective in stabilizing the economy of the southern block of countries during the financial crisis, although the total welfare effect for the EMU is negative, though small. Ex ante, a transfer mechanism would be beneficial for both the North and the South in terms of welfare and stabilization purposes.
LanguageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages79
Volume2016-023
Publication statusPublished - 21 Jun 2016

Publication series

NameCentER Discussion Paper
Volume2016-023

Fingerprint

DSGE models
Fiscal transfers
Euro area
Monetary union
Fiscal
Financial crisis
Welfare effects
Bayesian methods
Economic and monetary union
Stabilization

Keywords

  • Two-country DSGE
  • Fiscal Federalism
  • Monetary union
  • fiscal policy

Cite this

Verstegen, L., & Meijdam, L. (2016). The Effectiveness of a Fiscal Transfer Mechanism in a Monetary Union: A DSGE Model for the Euro Area. (CentER Discussion Paper; Vol. 2016-023). Tilburg: CentER, Center for Economic Research.
Verstegen, Loes ; Meijdam, Lex. / The Effectiveness of a Fiscal Transfer Mechanism in a Monetary Union : A DSGE Model for the Euro Area. Tilburg : CentER, Center for Economic Research, 2016. (CentER Discussion Paper).
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Verstegen, L & Meijdam, L 2016 'The Effectiveness of a Fiscal Transfer Mechanism in a Monetary Union: A DSGE Model for the Euro Area' CentER Discussion Paper, vol. 2016-023, CentER, Center for Economic Research, Tilburg.

The Effectiveness of a Fiscal Transfer Mechanism in a Monetary Union : A DSGE Model for the Euro Area. / Verstegen, Loes; Meijdam, Lex.

Tilburg : CentER, Center for Economic Research, 2016. (CentER Discussion Paper; Vol. 2016-023).

Research output: Working paperDiscussion paperOther research output

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Verstegen L, Meijdam L. The Effectiveness of a Fiscal Transfer Mechanism in a Monetary Union: A DSGE Model for the Euro Area. Tilburg: CentER, Center for Economic Research. 2016 Jun 21. (CentER Discussion Paper).